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Behavioral Finance
What does it mean?
A field of finance that proposes psychology-based theories to explain stock market anomalies. Within behavioral finance it is assumed that the information structure and the characteristics of market participants systematically influence individuals' investment decisions as well as market outcomes.
In Other Words...
There have been many studies that have documented long-term historical phenomena in securities markets that contradict the efficient market hypothesis and cannot be captured plausibly in models based on perfect investor rationality. Behavioral Finance attempts to fill the void.
Related Links
The Madness of Crowds - When faced with the puzzling yet undeniable power of the crowds, the rational trader is left with some perplexing questions.
Related Terms
Behavioral Economics | Efficient Market Hypothesis (EMH) | Lemming
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