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La finance comportementale ou le développement d'un nouveau paradigme

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Abstract

Behavioural Finance or the Emergence of a New Paradigm This paper analyzes the epistemological struggle given by the behavioural finance to become the main theoretical framework of financial economics. Three kinds of strategies have been studied : a sociological, a historical and a methodological one. These strategies are presented as arguments in favour of behavioural finance because they have been developed to favour the emergence of this new approach. Nowadays, we can observe a strong institutionalization of the behavioural finance that is more and more published and studied in conferences and workshops. By developing such strategies, we can expect that behavioural finance become the new paradigm in financial economics.

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... These interactions result from two contradictory logics, both of which are necessary for the constitution of financial economics: a first logic is that of integration into the economic framework in order to justify its sub-disciplinary status, a second is a logic of differentiation with respect to economics in order to define the characteristics and identity of this sub-discipline. This double contradictory logic is found, for example, in the emergence of financial economics in the 1960s, and in the emergence of Behavioral Finance in the 1990s, both of which appropriate and distinguish themselves from the dominant framework, namely a formal framework centered on the analysis of rational agents in a competitive situation (Jovanovic 2008;Schinckus 2009). ...
... This research is still very important in the field (Cochrane 2011(Cochrane , 2017. Schinckus (2009Schinckus ( , 2011 analyzes the emergence of behavioral finance. Jovanovic and Numa (2020) studies the export of this hypothesis to France in the 1980s. ...
... 22 Historians of recent thought thus have an uneasy relationship with economists. While maintaining a critical distance, they also use economists and their narratives 20 The work of historian Christophe Schinckus (2009Schinckus ( , 2011 represents a notable exception. 21 See for example the work of Forder (2014) on the Phillips curve. ...
Thesis
This thesis provides a historical and methodological analysis of the efficient market hypothesis, which represents one of the theoretical pillars of financial economics, but also one of the most controversial notions in the field. This research aims to shed light on the debates about this central and ambiguous concept, whose history is characterized by the diversity of its formulations and interpretations. In this thesis, I study these formulations and the contexts in which they emerged. I analyze the evolution of this hypothesis, from its origins in the 1920s to the recent transformations of the early 1980s. I interpret the efficient market hypothesis as a bridge between financial economics and economics, that is, as a concept at the heart of the identity of financial economics, but also as the main object through which this sub-discipline dialogues with the rest of the discipline. This intellectual history is structured around four articles, which discuss in detail these interactions. In the first episode, I examine the pioneering analyses of financial markets pursued by agricultural economists during the inter-war period and their influence on modern financial economics. In the second episode, I focus on the modern development of this hypothesis during the emergence of financial economics in the 1960s and on the close relationship between economists and early financial economists. The third episode explores the growing role of macroeconomists in the 1970s and early 1980s, which ultimately led to the questioning and reformulation of the hypothesis. Finally, the fourth chapter offers a methodological analysis that investigates the link between market efficiency and Hayek’s information theory. In this fourth episode, I analyze the conceptual similarities and differences between these two theories of price formation.
... Savage 5 a étendu ce modèle en contexte d'incertitude, les probabilités objectives étant remplacées par des probabilités subjectives. Les préférences individuelles qui satisfont ces axiomes ont une fonction d'utilité linéaire dans les probabilités (Von Neumann et Morgenstern (1947) 6 ). La loterie choisie par l'agent rationnel est celle qui produit la plus importante satisfaction. ...
... Le courant de la finance comportementale propose de reconsidérer les hypothèses comportementales en abandonnant les axiomes de la décision rationnelle et la thèse de l'efficience des marchés. Ce champ récent (les premiers articles datent des années quatre-vingt dix) est devenu une discipline à part entière de la finance, avec ses propres revues académiques (Journal of Psychology and Financial Markets qui deviendra le Journal of Behavioral Finance en 2003), ses colloques, s'auto-érigeant comme un paradigme alternatif au paradigme classique (Schinkus, [6]). Nous reviendrons ici sur les caractéristiques de cette école puis sur certains résultats devenus désormais classiques. ...
... Peuvent être mis sous ce vocable tous les articles remettant en cause le modèle standard. Toutefois, Schinkus [6] souligne que cet ensemble hétéroclite s'accorde sur trois hypothèses. ...
Article
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Finance comportementale, une critique au paradigme classique de la finance Le paradigme classique de la finance repose sur deux postulats : la rationalité de la décision et l'efficience des prix. Les observations faites sur les marchés et en laboratoire ont remis en cause ce cadre théorique ouvrant ainsi la voie à de nouvelles explications. La finance comportementale s'est ainsi constituée à partir du début des années quatre-vingt-dix, en formulant de nouvelles hypothèses plus réalistes pour appréhender les comportements financiers. Mobilisant la théorie des perspectives de Kahneman et Tversky et des résultats en psychologie cognitive, ce courant a permis d'expliquer nombre de faits considérés dans la paradigme classique comme des anomalies ou des irrationalités. La finance constitue un champ d'inspiration et d'expérimentation fécond pour les économistes, une sorte de laboratoire géant permettant de tester des modèles, de vérifier des hypothèses, de forger de nouvelles explications. Deux raisons à cela. En premier lieu, cette exemplarité du champ financier provient de sa proximité avec le marché libéral utopique. Le marché financier est effectivement le lieu de rencontre d'offres et de demandes d'agents mus par la maximisation du profit. Cette confrontation produit un prix connu de tous. Le résultat des décisions des agents est un profit monétaire découlant du différentiel entre les prix d'achat et de vente. Ainsi, les variables à considérer pour comprendre les comportements et la dynamique financière sont de prime abord, circonscrites dans le champ traditionnellement imparti aux sciences économiques. Il est donc possible de proposer des modèles micro-économiques ou macro-économiques pour appréhender les faits stylisés observés sur les marchés. D'autant, et c'est la seconde raison de l'exemplarité de ce champ, que la finance produit de nombreuses données quantitatives sur les transactions (prix et volumes de titres échangés), mais aussi des informations précèdent l'échange grâce au carnet d'ordre qui enregistre les désirs en terme de prix et de volume des agents et aux enquêtes d'opinion réalisées auprès de professionnels qui renseignent sur les anticipations individuelles. De plus, la temporalité des données est vaste. Les historiens de la finance ont pu reconstituer des bases très longues grâce notamment aux journaux financiers qui publiaient la cote des titres. Ainsi, pour les Etats-Unis ou la France, il est possible de disposer de données fiables depuis le début du XIXème siècle. Pour le Royaume-Uni, des données existent depuis le XVIIème siècle. Nous disposons aussi sur la période récente de données horodatées voire pour les dernières années des données à la nano-seconde. Grâce à ces deux caractéristiques –proximité avec le modèle pur du marché et de l'homo-oeconomicus la et disponibilité de données, le marché financier est particulièrement adapté pour tester la pertinence des modèles.
... Comme le montrent, par exemple, les chapitres dédiés à la finance comportementale, la finance a su profondément se renouveler en intégrant des dimensions psychologiques et institutionnelles fortes. Le courant de la finance comportementale (Albouy et Charreaux, 2005 ;Schinckus, 2009 ;Baker et Wurgler, 2013) a permis de renouveler l'étude du fonctionnement des marchés financiers et des décisions financières en prenant en compte les biais comportementaux et de commencer à résoudre de nombreux puzzles face auxquels la théorie financière traditionnelle restait sans réponse. En faisant des questions de gouvernance, axées à l'origine sur les problèmes posés par les conflits d'intérêts entre actionnaires et dirigeants, un champ de recherche à part entière, la finance a su intégrer et, ce, depuis plus de quarante ans les dimensions institutionnelles -par exemple, juridiques -qu'elle ignorait dans le paradigme traditionnel. ...
... Cet élargissement des méthodes semble confirmer les changements de paradigme qui se sont produits et continuent de se produire dans le champ de la finance et qui semblent d'une ampleur comparable (tout en étant moins brutaux) que ceux qui se sont produits dans les années (19)50-60 avec la constitution de la théorie financière néoclassique. Ainsi, l'émergence de la finance comportementale est habituellement perçue comme témoignant d'un changement de paradigme (Albouy et Charreaux, 2005 ;Schinckus, 2009), même si un auteur comme Shiller (2006) relativise la distinction entre la finance néoclassique et la finance comportementale : ...
... Comme le montrent, par exemple, les chapitres dédiés à la finance comportementale, la finance a su profondément se renouveler en intégrant des dimensions psychologiques et institutionnelles fortes. Le courant de la finance comportementale (Albouy et Charreaux, 2005 ;Schinckus, 2009) a permis de renouveler l'étude du fonctionnement des marchés financiers et des décisions financières en prenant en compte les biais comportementaux et de commencer à résoudre de nombreux puzzles face auxquels la théorie financière traditionnelle restait sans réponse. En faisant des questions de gouvernance, axées à l'origine sur les problèmes posés par les conflits d'intérêts entre actionnaires et dirigeants, un champ de recherche à part entière, la finance a su intégrer également et, ce, depuis plus de quarante ans les dimensions institutionnelles -par exemple, juridiques -qu'elle ignorait dans le paradigme traditionnel. ...
... Cet élargissement des méthodes semble confirmer les changements de paradigme qui se sont produits et continuent de se produire dans le champ de la finance et qui semblent d'une ampleur comparable (tout en étant moins brutaux) que ceux qui se sont produits dans les années 1950 et 1960 avec l'émergence de la théorie financière néoclassique. Ainsi, l'émergence de la finance comportementale est souvent perçue comme témoignant d'un changement de paradigme (Albouy et Charreaux, 2005 ;Schinckus, 2009), même si un auteur comme Shiller (2006) relativise la distinction entre la finance néoclassique et la finance comportementale : ...
... Dans cette logique, les investisseurs (et singulièrement les investisseurs individuels) ne se comportent pas toujours de manière rationnelle compte tenu du fait qu'ils subissent l'influence de facteurs psychologiques, émotionnels et cognitifs (Sakthivelu & Karthikeyan, 2024). Schinckus C. (2009), sur la base d'une approche historique, sociologique et méthodologique, avançait l'idée que la finance comportementale allait devenir le nouveau paradigme dominant de l'économie financière dans la mesure où, dans la lignée des travaux de Frydman C. et Camerer C. (2016), il existerait un grand nombre de configurations boursières qui seraient incompatibles avec l'utilisation rationnelle de l'information et la balance entre le risque et le rendement. Se pose ainsi la question de la compréhension et du décryptage de l'information par les opérateurs boursiers avec de potentielles évaluations erronées des risques (Gabaix X., 2011). ...
Experiment Findings
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Mots-clés : finance comportementale, recherche qualitative, biais comportementaux et cognitifs, finance expérimentale, marchés boursiers Résumé En recourant à une méthodologie issue de la finance expérimentale sous-tendue par l'utilisation d'outils qualitatifs d'analyse, l'objectif de cet article est d'étudier l'éventuelle présence du biais « tout ce qui brille attire » afin d'expliquer les comportements des investisseurs individuels. Dans cette optique, nous avons observé les stratégies de placement et les comportements de huit étudiants en situation de trading continu durant trois journées. Au départ d'un portefeuille fictif de 100.000 euros, les participants pouvaient négocier des actions d'entreprises provenant de l'indice CAC40 (les 40 plus grosses capitalisations boursières sur le marché français). En fonction de la taille des entreprises de l'indice, nous faisons le constat d'une densité d'informations divulguées aux marchés qui peuvent, dans une certaine mesure, complexifier la lecture et la traduction des signaux informationnels envoyés. Sur la base de la lecture des carnets de trading-et plus spécifiquement le nombre de transactions opérées sur certains titres-nous faisons le constat d'un positionnement très fort de participants sur les actions d'entreprises les plus suivies par les analystes financiers et les plus médiatisées. Pour étayer nos résultats, nous rassemblons, par un processus d'observations participantes, également différents témoignages des participants récoltés au fur et à mesure de l'expérience. Les différents éléments récoltés nous poussent à croire que les processus décisionnels des participants ont largement été influencés par l'intensité de la communication des entreprises et leur omniprésence dans les champs informationnels proposés par les sites boursiers. La conclusion de cette analyse nous laisse à penser que, dans l'esprit des investisseurs individuels, le marketing lié à la vie boursière des entreprises primerait sur les contenus informationnels en tant que tels. En tout de cause, dans leur processus décisionnels, les participants ont manifestement retenu des actions d'entreprises sous le feu de l'actualité et donc, en fonction du contexte d'analyse et des outils d'investigation retenus, nous validons la présence du biais « tout ce qui brille attire » et d'une forte focalisation sur l'information disponible.
... En conséquence, les individus ont tendance à opter pour des alternatives plus simples plutôt que pour des solutions optimales. Cela compromet leur niveau de satisfaction, du fait qu'il ne répond pas aux normes de rationalité parfaite décrites dans les modèles moyenne-variance (Schinckus C. 2009, p. 107)). En utilisant cette perspective théorique dans le cadre de la théorie comportementale, les décisions financières peuvent être influencées par des heuristiques, des biais cognitifs et des émotions résultant de la rationalité limitée. ...
Article
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This comparative study explores behavioral finance and Islamic finance in depth, highlighting their fundamental differences and points of convergence. On the one hand, behavioral finance delves into the study of cognitive biases and irrational behaviors that influence financial decisions, offering an essential psychological perspective on markets. Islamic finance, on the other hand, is founded on ethical principles in line with “Sharia” law, aiming to create a financial system based on justice and equity. Prominent figures, including Kahneman &Tversky (1979), Thaler (2015) and Usmani (2002), have played a major role in the development of these fields. This analysis also examines the implications of these two approaches for financial decision-making, financial products, ethics and social responsibility. It emphasized the importance of understanding the behavioral mechanisms behind investment choices, and of designing financial products in line with ethical principles. In addition, it suggests avenues for future research, including exploring the potential integration of behavioral finance principles into Islamic finance. Methodologically, this study is based on an analysis of academic literature and specialized sources in both fields, providing essential information on their origins, objectives, financial instruments and mechanisms. It then adopts a rigorous comparative approach to identify the crucial convergences and divergences between behavioral finance and Islamic finance. Through the synthesis of this data, this study aspires to offer an in-depth understanding of the possible synergies between these two approaches and their potential contribution to more responsible financial markets. Ultimately, this research aims to shed light on the complex relationship between behavioral and Islamic finance, while providing practical recommendations for policymakers, investors and financial market players seeking to leverage these fields to shape a more ethical, equitable and sustainable financial future
... Empirically, our sample has a large N (114 economies) and a relative short T (14 year, 2002-2015) so that we might face with an issue of cross-sectional dependence 7 in our panel estimations. To deal with this matter, we recruit the Persaran's test (Pesaran, 2021) to check the cross-sectional dependence (Schinckus, 2009). The results in last column of Table 1 indicate a cross-sectional dependence among most of our variables except the case of control of corruption (Concor). ...
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This article investigates the links between the technological evolution and the importance of informal economic activities. We examine the influences of internet usage on the shadow economy in a global sample between 2002 and 2015. With this purpose, we mobilize the panel fixed-effects estimate and the panel corrected standard errors estimate (as a robustness check) for the analysis of 114 economies (and three sub-samples including high-income economies (HIEs), upper-middle-income economies (UMEs), and lower-middle-income economies (LMEs)). Our results indicate that the use of the internet generally has a negative impact on the shadow economy. This influence of internet is consistent across all institutional environments. Interestingly, technology is not spread through the shadow economy in the same way everywhere since we observe a U-shaped relationship between internet usage and the shadow economy. Our research shows that technology might also have a negative influence on official activities if its implementation is not combined with an appropriate institutional policy allowing policy-makers to avoid the technology-side effects.
... There is even a journal called Tourism Economics devoted to the theme. However, some studies (Schinckus, 2009(Schinckus, , 2011 invite scholars to adopt a more holistic perspective, by studying new potential determinants of international tourism, such as political instability (Fletcher & Morakabati, 2008) or pandemics (Brouder, 2020). ...
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This article investigates the drivers of outbound tourism. The originality of our approach is that it integrates socio-environmental aspects in the demand for international tourism. This study provides an empirical analysis for panel data of 82 economies from 2002 to 2016. Several estimates for panel data are applied. The results are robust and consistent. Beyond the classical economic drivers of tourism, socioeconomic factors, including urbanization, unemployment, vulnerable employment, and particularly aging population, are shown to play an important role in international tourism departures and international tourism expenditure. One of the notable findings is that environmental factors, including CO2 emissions (positive) and forest area (negative), have a significant effect on international tourism. The results also show a stronger influence of economic, social, and environmental determinants of outbound tourism in higher-income economies in the period after 2008.
... Elle cède la place à une rationalité psychologique limitée et donc plus réaliste. [21] ...
Article
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Les apports de la finance comportementale ne sont actuellement plus à démontrer. La recherche en termes des sciences cognitives a justement permis de mettre en évidence l’existence de biais et heuristiques qui -entre autres- conditionnent les décisions des investisseurs en bourse. Ainsi, celles-ci ne sont pas nécessairement parfaitement rationnelles, contrairement à ce que stipule la finance classique. Diverses et éparpillées dans la littérature y afférente, les théories fondatrices de ces deux courants font dans ce papier l’objet d’un tri, d’un recueil synthétique des principales d’entre elles, puis d’une confrontation franche mettant en évidence leurs points de divergence et leurs aspects complémentaires.
... Notre analyse milite pour une prise en compte de la capacité psychologique des investisseurs dans l'analyse de leur décision d'investissement. Cette prise en compte ne consiste pas à énumérer des biais cognitifs éloignant le BA d'une méthode d'évaluation postulée comme « vraie » (Laroche et Nioche, 2006;Schinckus, 2009). Elle doit s'intéresser au processus effectif de traitement de l'information lorsque le BA est en situation d'évaluation, sans porter de jugement de valeur. ...
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Research on this project was supported by a grant from the National Science Foundation. I am indebted to Arthur Laffer, Robert Aliber, Ray Ball, Michael Jensen, James Lorie, Merton Miller, Charles Nelson, Richard Roll, William Taylor, and Ross Watts for their helpful comments.
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This paper explores a judgmental heuristic in which a person evaluates the frequency of classes or the probability of events by availability, i.e., by the ease with which relevant instances come to mind. In general, availability is correlated with ecological frequency, but it is also affected by other factors. Consequently, the reliance on the availability heuristic leads to systematic biases. Such biases are demonstrated in the judged frequency of classes of words, of combinatorial outcomes, and of repeated events. The phenomenon of illusory correlation is explained as an availability bias. The effects of the availability of incidents and scenarios on subjective probability are discussed.
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This article described three heuristics that are employed in making judgements under uncertainty: (i) representativeness, which is usually employed when people are asked to judge the probability that an object or event A belongs to class or process B; (ii) availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a class or the plausibility of a particular development; and (iii) adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available. These heuristics are highly economical and usually effective, but they lead to systematic and predictable errors. A better understanding of these heuristics and of the biases to which they lead could improve judgements and decisions in situations of uncertainty.
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The Mediterranean trajectory of Aristotle's economic canon -- The idea of usury in Patristic literature -- Self-interest as an acceptable mode of human behavior -- Deconstructing the canonical view on Adam Smith: a new look at principles of economic -- The "canonical" model of economic growth in the debate between Ricardo and Malthus --In defence of a traditional canon: a comparaison of Ricardo and Rau -- Crackimg the canon: William Stanley Jevons and the deconstruction of "Ricardo" -- Who blushes at the name: John Kells Ingram and minor literature -- In search of a canonical history of macroeconomics in the interwar period: Haberler's prosperity and Depression revisited -- Preobrazhensky and the theory of economic -- Canon and heresy: religion as a way of tellig the story of economics -- The neo-classical synthesis in the Netherlans: a demand and supply analysis
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Recent studies argue that the spread-adjusted Taylor rule (STR), which includes a response to the credit spread, replicates monetary policy in the United State. We show (1) STR is a theoretically optimal monetary policy under heterogeneous loan interest rate contracts in both discretionay and commitment monetary policies, (2) however, the optimal response to the credit spread is ambiguous given the financial market structure in theoretically derived STR, and (3) there, a commitment policy is effective in narrowing the credit spread when the central bank hits the zero lower bound constraint of the policy rate.
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Behavioral finance argues that some financial phenomena can plausibly be understood using models in which some agents are not fully rational. The field has two building blocks: limits to arbitrage, which argues that it can be difficult for rational traders to undo the dislocations caused by less rational traders; and psychology, which catalogues the kinds of deviations from full rationality we might expect to see. We discuss these two topics, and then present a number of behavioral finance applications: to the aggregate stock market, to the cross-section of average returns, to individual trading behavior, and to corporate finance. We close by assessing progress in the field and speculating about its future course.
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Recent literature in empirical finance is surveyed in its relation to underlying behavioral principles, principles which come primarily from psychology, sociology and anthropology. The behavioral principles discussed are: prospect theory, regret and cognitive dissonance mental compartments, overconfidence, over- and underreaction, representativeness heuristic disjunction effect, gambling behavior and speculation, perceived irrelevance of history thinking, quasi-magical thinking, attention anomalies, the availability heuristic contagion, and global culture.
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We develop a new version of prospect theory that employs cumulative rather than separable decision weights and extends the theory in several respects. This version, called cumulative prospect theory, applies to uncertain as well as to risky prospects with any number of outcomes, and it allows different weighting functions for gains and for losses. Two principles, diminishing sensitivity and loss aversion, are invoked to explain the characteristic curvature of the value function and the weighting functions. A review of the experimental evidence and the results of a new experiment confirm a distinctive fourfold pattern of risk: risk aversion for gains and risk seeking for losses of high probability; risk seeking for gains and risk aversion for losses of low probability. Copyright 1992 by Kluwer Academic Publishers
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This paper surveys the field of asset pricing. The emphasis is on the interplay between theory and empirical work and on the trade-off between risk and return. Modern research seeks to understand the behavior of the stochastic discount factor (SDF) that prices all assets in the economy. The behavior of the term structure of real interest rates restricts the conditional mean of the SDF, whereas patterns of risk premia restrict its conditional volatility and factor structure. Stylized facts about interest rates, aggregate stock prices, and cross-sectional patterns in stock returns have stimulated new research on optimal portfolio choice, intertemporal equilibrium models, and behavioral finance. Copyright The American Finance Association 2000.
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The efficient markets theory reached the height of its dominance in academic circles around the 1970s. Faith in this theory was eroded by a succession of discoveries of anomalies, many in the 1980s, and of evidence of excess volatility of returns. Finance literature in this decade and after suggests a more nuanced view of the value of the efficient markets theory, and, starting in the 1990s, a blossoming of research on behavioral finance. Some important developments since 1990 include feedback theories, models of the interaction of smart money with ordinary investors, and evidence on obstacles to smart money.
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The efficient market hypothesis has been widely tested and, with few exceptions, found consistent with the data in a wide variety of markets: the New York and American Stock Exchanges, the Australian, English, and German stock markets, various commodity futures markets, the Over-the-Counter markets, the corporate and government bond markets, the option market, and the market for seats on the New York Stock Exchange. Yet, in a manner remarkably similar to that described by Thomas Kuhn in his book, The Structure of Scientific Revolutions, we seem to be entering a stage where widely scattered and as yet incohesive evidence is arising which seems to be inconsistent with the theory. As better data become available (e.g., daily stock price data) and as our econometric sophistication increases, we are beginning to find inconsistencies that our cruder data and techniques missed in the past. It is evidence which we will not be able to ignore. The purpose of this special issue of the Journal of Financial Economics is to bring together a number of these scattered pieces of anomalous evidence regarding Market Efficiency. As Ball (1978) points out in his survey article: taken individually many scattered pieces of evidence on the reaction of stock prices to earnings announcements which are inconsistent with the theory don't amount to much. Yet viewed as a whole, these pieces of evidence begin to stack up in a manner which make a much stronger case for the necessity to carefully review both our acceptance of the efficient market theory and our methodological procedures.
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Recent empirical research in finance has uncovered two families of pervasive regularities: underreaction of stock prices to news such as earnings announcements, and overreaction of stock prices to a series of good or bad news. In this paper, we present a parsimonious model of investor sentiment, or of how investors form beliefs, which is consistent with the empirical findings. The model is based on psychological evidence and produces both underreaction and overreaction for a wide range of parameter values.
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Analysis of decision making under risk has been dominated by expected utility theory, which generally accounts for people's actions. Presents a critique of expected utility theory as a descriptive model of decision making under risk, and argues that common forms of utility theory are not adequate, and proposes an alternative theory of choice under risk called prospect theory. In expected utility theory, utilities of outcomes are weighted by their probabilities. Considers results of responses to various hypothetical decision situations under risk and shows results that violate the tenets of expected utility theory. People overweight outcomes considered certain, relative to outcomes that are merely probable, a situation called the "certainty effect." This effect contributes to risk aversion in choices involving sure gains, and to risk seeking in choices involving sure losses. In choices where gains are replaced by losses, the pattern is called the "reflection effect." People discard components shared by all prospects under consideration, a tendency called the "isolation effect." Also shows that in choice situations, preferences may be altered by different representations of probabilities. Develops an alternative theory of individual decision making under risk, called prospect theory, developed for simple prospects with monetary outcomes and stated probabilities, in which value is given to gains and losses (i.e., changes in wealth or welfare) rather than to final assets, and probabilities are replaced by decision weights. The theory has two phases. The editing phase organizes and reformulates the options to simplify later evaluation and choice. The edited prospects are evaluated and the highest value prospect chosen. Discusses and models this theory, and offers directions for extending prospect theory are offered. (TNM)
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The behavioral finance revolution in academic finance in the last several decades is best described as a return to a more eclectic approach to financial modeling. The earlier neoclassical finance revolution that had swept the finance profession in the 1960s and 1970s represented the overly-enthusiastic pursuit of only one model. Freed from the tyranny of just one model, financial research is now making faster progress, and that progress can be expected to show material benefits. An example of the application of both behavioral finance and neoclassical finance is discussed: the reform of Social Security and the introduction of personal accounts. Copyright 2006 by the Eastern Finance Association.
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Observed preference reversal cannot be adequately explained by violations of independence, the reduction axiom, or transitivity. The primary cause of preference reversal is the failure of procedure invariance, especially the overpricing of low-probability, high-payoff bets. This result violates regret theory and generalized (nonindependent) utility models. Preference reversal and a new reversal involving time preferences are explained by scale compatibility, which implies that payoffs are weighted more heavily in pricing than in choice. Copyright 1990 by American Economic Association.
Article
A menu of paired lottery choices is structured so that the crossover point to the high-risk lottery can be used to infer the degree of risk aversion or preference. When payoffs are hypothetical and gains are transformed into losses by reflecting them around zero, more than half of the subjects exhibit a "reflection effect" (risk aversion for gains and risk seeking for losses). With cash payoffs, however, this pattern is not observed; many subjects exhibit risk aversion for both gains and losses, and the frequency of reflection (about ten percent) is not much greater than the frequency of reverse reflection (risk seeking for gains and risk aversion for losses). Risk aversion is, however, less common in the loss domain. Keywords: lottery choice, reflection effect, prospect theory, risk aversion, incentive effects, hypothetical payoffs. One of the most widely cited articles in the economics literature is the Kahneman and Tversky (1979) paper on prospect theory, which is designed to explai...
Advances in Behavioral Finance A Model of Investor Sentiment
  • Barberis N Thaler
  • R Barberis
  • N Huang
  • M Santos
BARBERIS N., THALER R., 2002, A Survey of Behavioral Finance, in THALER R., (ed.), Advances in Behavioral Finance, New York, Princeton University Press, 1-75. BARBERIS N., HUANG M., SANTOS T., 2001, Prospect Theory and Asset Prices, Quarterly Journal of Economics, 116, 1-53. BARBERIS N., SHLEIFER A., VISHNY R., 1998, A Model of Investor Sentiment, Journal of Financial Economics, 49, 307-343. BENSIMHON L., 2002, Finance comportementale et impacts sur les marchés financiers : un modèle de cascades informationnelles, Toulouse, Université de Toulouse (document de travail).