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Behavioural Finance and Equity Investment Strategies

Day One

Foundations of Behavioural Finance

  • Decision making
    • Modern vs. institutional vs. Behavioural finance
  • Judgement and choice: Psychological mechanisms
    • Sources of bias: Cognitive, emotional and socio-psychological
    • Mental frames and pseudo-beliefs
    • Gains, losses and risk-taking. Prospect theory. Loss aversion
    • Heuristics
    • Why people do or do not learn from experience
  • Decision traps
    • Status-quo bias. Default options. Inertia. Procrastination
    • Denial of losses. Delay. Escalation of commitment
    • Hindsight bias. The seven sins of memory
    • Regret. The power of counterfactuals
    • Unrealistic optimism. Wishful thinking
    • Overconfidence. Information overload
    • Social pressure and lack of self-confidence
    • Gut feelings
  • Deceptive illusions: How investors mismanage their portfolios
    • Perceptions of prices
    • Perceptions of value
    • Risk management
    • Trading practices  

Day Two

Equity Investment Strategy

  • Modern vs. Behavioural Finance
    • Central insights: Intuition is fragile. Institutional design and market psychology are key
  • Price and value
    • Theory of value. Arbitrage vs. fundamental value
    • Discount models and P/E ratios
    • Investor disagreement and market prices. Theory of marginal opinion
  • Return predictability in world equity markets
    • How much predictability do past asset return data show?
  • False beliefs
  • Irrational exuberance in world financial markets
  • Over- and underreaction in the cross-section of securities
  • Price trends and reversals
  • Fixation on reported earnings
  • Fixation on earnings targets
  • Strategic refinements
    • Fundamental signals
    • Value investing: how to separate winners from losers

Final review and Q & A session


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