Finance and the Behavioral Prospect: Risk, Exuberance, and Abnormal Markets [Hardcover]

This book explains how investor behavior, from mental accounting to the combustible interplay of hope and fear, affects financial economics. The transformation of portfolio theory begins with the identification of anomalies. Gaps in perception and behavioral departures from rationality spur momentum, irrational exuberance, and speculative bubbles. Behavioral accounting undermines the rational premises of mathematical finance. Assets and portfolios are imbued with affect. Positive and negative emotions warp investment decisions. Whether hedging against intertemporal changes in their ability to bear risk or climbing a psychological hierarchy of needs, investors arrange their portfolios and financial affairs according to emotions and perceptions. Risk aversion and life-cycle theories of consumption provide possible solutions to the equity premium puzzle, an iconic financial mystery. Prospect theory has questioned the cogency of the efficient capital markets hypothesis. Behavioral portfolio theory arises from a psychological account of security, potential, and aspiration.

Chapter 1  The Structure of a Behavioral Revolution

? 1.1  Abnormal markets, irrational investors

? 1.2  Anomalies, fast and slow

? 1.3  Sell in May and go away?

? 1.4  Law on the market

? 1.5  Raw emotion

? 1.6  Trade like a girl

Chapter 2  Mental Accounting, Emotional Hierarchies, and Behavioral Heuristics

? 2.1  Keeping emotional score

? 2.2  Maslowian portfolio theory

? 2.3  Shots at greatness: Rehabilitating self-actualization in neo-Maslowian thought as a trading strategy

? 2.4  Behavioral environmental economics

? 2.l³'