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Article
Publication date: 18 May 2020

Meir Statman

The purpose of this paper is to depict how the author's way from standard finance to the first and second generations of behavioral finance illustrates the ongoing general…

1362

Abstract

Purpose

The purpose of this paper is to depict how the author's way from standard finance to the first and second generations of behavioral finance illustrates the ongoing general transition.

Design/methodology/approach

The first generation, starting in the early 1980s, largely accepted standard finance's notion of people's wants as “rational” wants – restricted to the utilitarian benefits of high returns and low risk. That first generation commonly described people as “irrational” – succumbing to cognitive and emotional errors and misled on their way to their rational wants. The second generation describes people as normal.

Findings

It begins by acknowledging the full range of people's normal wants and their benefits – utilitarian, expressive and emotional – distinguishes normal wants from errors and offers guidance on using shortcuts and avoiding errors on the way to satisfying normal wants. People's normal wants include financial security, nurturing children and families, gaining high social status and staying true to values. People's normal wants, even more than their cognitive and emotional shortcuts and errors, underlie answers to important questions of finance, including saving and spending, portfolio construction, asset pricing and market efficiency.

Originality/value

The article identifies that people's normal wants include financial security, nurturing children and families, gaining high social status and staying true to values. People's normal wants, even more than their cognitive and emotional shortcuts and errors, underlie answers to important questions of finance, including saving and spending, portfolio construction, asset pricing and market efficiency.

Details

Review of Behavioral Finance, vol. 12 no. 1
Type: Research Article
ISSN: 1940-5979

Keywords

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Article
Publication date: 5 February 2018

William Forbes

447

Abstract

Details

Qualitative Research in Financial Markets, vol. 10 no. 1
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 1 September 1997

George E. Pinches and Diane M. Lander

Interviews in South Korea, Taiwan, Singapore, and India indicate net present value (NPV) is not widely employed in making capital investment decisions in these newly…

886

Abstract

Interviews in South Korea, Taiwan, Singapore, and India indicate net present value (NPV) is not widely employed in making capital investment decisions in these newly industrialized and developing countries. It is not from lack of knowledge about net present value: rather, it is due to (1) widespread violation of the assumptions underlying NPV, (2) the high risk/high return nature of the capital investments, and (3) the decision‐making process employed in making capital investment decisions. These same three conditions exist for many capital investment decisions made by firms in developed countries. Only by abandoning the static NPV approach, building in real options, and understanding and building in the decision‐making process will further advances be made in capital budgeting decision‐making. One of the key paradigms in finance is net present value (NPV). In order to maximize value, managers should accept all positive NPV investment projects, and reject all negative NPV projects. The issue becomes more complex when uncertainty is introduced, or, as in recent years, when real options to defer, abandon, expand, etc. are incorporated into the decision‐making process [e.g., Dixit and Pindyck (1994) and Trigeorgis (1995 and 1996)]. However, with these exceptions, the state of the art in capital investment decision‐making revolves around the simple statement—take all positive NPV projects. In practice, evidence from surveys and discussions with corporate executives indicates the message taught for the last 30 years in business schools has been heard and, to a large extent, acted upon by larger U.S., Canadian, and British‐based firms. While larger firms in North America, and to a lesser extent Western Europe, generally employ the static, or traditional, NPV framework for making, or assisting in making, capital investment decisions, less is known about the decision‐making process employed by firms in other parts of the world. The question addressed in this study is: “Do firms in other parts of the world, especially in newly industrialized or developing countries in the Asia Pacific region, employ NPV for making capital investment decisions?” The purposes of this study are threefold: (1) to report the results of a series of open‐ended interviews conducted in South Korea, Taiwan, Singapore, and India about the capital investment decision‐making process employed; (2) to understand why NPV is not widely employed in making capital investment decisions in these newly industrialized and developing countries; and, most important, (3) to indicate that NPV and the capital budgeting decision‐making process need rethinking and refocusing to make them more effective—in all countries, whether developed, newly industrialized, or developing. The paper proceeds in the following manner. Section I provides an introduction to the study. In Section II the results of the interviews are presented. In Section III patterns that emerged during the interview process are presented, along with a number of specific examples of the types of capital investment decisions being considered. In Section IV the assumptions underlying NPV are examined, and then risk/return and the decision‐making process are considered. Section V contains the discussion and conclusions.

Details

Managerial Finance, vol. 23 no. 9
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 6 May 2020

Robert Hudson and Yaz Gulnur Muradoglu

The paper aims to provide the individual routes of the authors into behavioural finance in order to introduce the special issue.

1338

Abstract

Purpose

The paper aims to provide the individual routes of the authors into behavioural finance in order to introduce the special issue.

Design/methodology/approach

The paper provides the background to the authors' personal route into behavioural finance.

Findings

The paper highlights general themes of development and influence of behavioural finance and relationships with practice and other areas of academic finance.

Originality/value

The paper offers the perspectives of the authors on how they feel the research area of behavioural finance will develop in the future.

Details

Review of Behavioral Finance, vol. 12 no. 1
Type: Research Article
ISSN: 1940-5979

Keywords

Available. Content available
Article
Publication date: 4 October 2011

Bruce Burton

338

Abstract

Details

Qualitative Research in Financial Markets, vol. 3 no. 3
Type: Research Article
ISSN: 1755-4179

Available. Content available
Article
Publication date: 29 July 2014

Bruce Burton

271

Abstract

Details

Qualitative Research in Financial Markets, vol. 6 no. 2
Type: Research Article
ISSN: 1755-4179

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Book part
Publication date: 29 January 2019

H. Kent Baker, Greg Filbeck and Halil Kiymaz

Abstract

Details

The Savvy Investor’s Guide to Pooled Investments
Type: Book
ISBN: 978-1-78973-213-9

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Article
Publication date: 1 February 2003

DALE L. DOMIAN, DAVID A. LOUTON and MARIE D. RACINE

Finance textbooks typically state that 8 to 20 stocks can provide adequate diversification for a portfolio. However, these recommendations usually assume a short time horizon such…

544

Abstract

Finance textbooks typically state that 8 to 20 stocks can provide adequate diversification for a portfolio. However, these recommendations usually assume a short time horizon such as one year. We examine 20‐year cumulative rates of return and ending wealth from an initial $100,000 investment allocated among 100 large U.S. stocks. Probability distributions obtained from simulations illustrate the shortfall risk faced by investors who own fewer titan 100 stocks. Five percent of the 20‐stock portfolios have ending wealth shortfalls exceeding 28%. These findings suggest that 8 to 20 stocks may be insufficient for long‐term investors.

Details

Studies in Economics and Finance, vol. 21 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 19 February 2025

Prince Kumar Maurya, Rohit Bansal and Anand Kumar Mishra

This study aims to systematically review the literature on how various factors influence investor sentiment and affect financial markets. This study also sought to present an…

1

Abstract

Purpose

This study aims to systematically review the literature on how various factors influence investor sentiment and affect financial markets. This study also sought to present an overview of explored contexts and research foci, identifying gaps in the literature and setting an agenda for future research.

Design/methodology/approach

The systematic literature investigation yielded 555 journal articles, with few other exceptional inclusions. The data have been extracted from the two databases, i.e. Scopus and Web of Science. For bibliometric analysis, VOSviewer and Biblioshiny by R have been used. The period of investigation is from 1985 to July 2023.

Findings

This systematic literature review helped us identify factors influencing investor sentiment and financial markets. This study has broadly classified these factors into two categories: rational and irrational. Rational factors include – economics and monetary policy, exchange rate, interest rates, inflation, government mandatory regulations, earning announcements, stock-split, dividend decisions, audit quality, environmental, social and governance aspects and ratings. Irrational factors include – behavioural and psychological factors, social media and online talk, news and entertainment, geopolitical and war events, calendar anomalies, environmental, natural disasters, religious events and festivals, irrationality caused due to government/supervisory body regulations, and corporate events. Using these factors, this study has developed an investor sentiment model. In addition, this review identified research trends, methodology, data and techniques used by researchers.

Originality/value

This review comprehensively explains how various factors affect investor sentiment and the stock market using the investor sentiment model. It further proposes an extensive future research agenda. This study has implications for stock market participants.

Details

Qualitative Research in Financial Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1755-4179

Keywords

Available. Content available
Article
Publication date: 18 November 2013

Bruce Burton

162

Abstract

Details

Qualitative Research in Financial Markets, vol. 5 no. 3
Type: Research Article
ISSN: 1755-4179

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