BEHAVIOURAL FINANCE and
Equity Investment Strategies

Course Outline

Modern finance portrays investment decision-making as rational choice. However, pure rationality does not describe how many decisions are truly made. This course examines (1) the behavioural strategies that amateur and expert investors rely upon to make decisions, (2) the structure and speculative dynamics of returns in world equity markets (from a psychological perspective), and (3) the practical implications of behavioural finance. The course includes a discussion of common psychological errors such as wishful thinking, extrapolation bias, tunnel vision, inertia, lack of self-discipline and emotional distortion.

Who The Course is For

• Securities analysts and portfolio managers
• Financial advisors relationship managers, private banking specialists
• Regulators
• Management consultants and corporate executives

• Affluent investors

Tell a colleague about this course

Prior Knowledge

The course is self-contained but prior knowledge of standard concepts in modern finance (e.g., portfolio theory, CAPM, beta, efficient markets) is required.

This program is eligible for 16 Continuing Education credit hours from the CFA Institute. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.

Brochure with Booking Form   |   Register to Receive Updates

Day One

Foundations of Behavioural Finance

Introduction

• Stock market bubbles
• Sources of price volatility
• Bubble psychology, the role of the news media
• Why rational arbitrage often fails

Judgement

• Heuristics and biases, mental frames
• Intuitive prediction, causal attribution
• Over- and underconfidence, information overload
• Clinical versus actuarial judgement, the seven sins of memory
• Why people do or do not learn from experience

Choice

• Utility theory, prospect theory, risk tolerance, loss aversion
• Status-quo bias, inertia, escalation of commitment
• Regret and disappointment
• Mental accounting, preference reversals
• Cultural factors in investor decision-making

Emotions

• Hope and fear, anxiety, stress, denial
• Mood management, self-discipline
• Illusions, unrealistic optimism

Social and Investor Psychology

• Familiarity bias
• Trust, performance benchmarks
• Conformism, herding
• Impression management
• How to improve committee decision-making
• “Fatal attractions” for money managers

Day Two

Equity Investment Strategy

Predictability in World Equity Markets

Reversals: Overreaction

• Do world stock markets overreact?
• Contrarian and momentum strategies
• Overreaction-to-earnings
• The nature, quality and value of analyst and economist forecasts

Trends: Underreaction

• Investor and analyst perceptions of corporate earnings
• Price, earnings, industry and style momentum

The management of earnings and earnings expectations

• Types of earnings management
• The obsession with quarterly earnings targets
• Earnings, cash flows, and accruals
• How consecutive positive earnings surprises drive up stock prices
• Corporate communication and information disclosure

Risk and return

• The market premium, the size premium, the value premium
• Seasonality in returns
• The risk of financial distress
• Analyst coverage
• Trading volume
• Growth at a reasonable price
• Developed vs. emerging markets
• Performance in bull and bear markets