Behavioral Finance

Course Code:

AFN 407

Course Type:

Area Elective

P:

3

Application:

0

Credits:

3

ECTS:

6

Prerequisite Courses:

Corporate Finance

Course Language:

İngilizce

Course Objectives:

To provide an insight on the behavioral approach to the concepts in financial markets such as financial decision making process, common investor biases and price formation.

Course Content:

The concept of market efficiency and its assumptions; investor rationality vs common biases such as herding and overreaction; asset pricing in a behavioral framework; role of investor sentiment; basics of prospect theory; risk and arbitrage; bubbles and crashes.

Course Methodology:

1: Lecture, 2: Question-Answer, 3: Discussion, 4: Simulation, 5: Case Study

Course Evaluation Methods:

A: Testing B: Presentation, C: Homework, D: Project, E: Laboratory

Vertical Tabs

Course Learning Outcomes

Learning Outcomes	Program Learning Outcomes	Teaching Methods	Assessment Methods
1. Knowledge of traditional finance theories, asset pricing models and their assumptions; the concept of market efficiency	4,7,8,9	1,2,3	A,C
2. Covering the basics of decision making and role of behavioral biases	4,7,8,9	1,2,3	A,C
3. Understanding of the behavioral approach in financial markets	4,7,8	1,2,3	A,C
4. Coverage of various common biases in financial markets	4,7,8	1,2,3	A,C
5. Overview of market anomalies and their consequences	4,7,8	1,2,3	A,C
6. Examination of financial markets from a behavioral finance framework to identify and deal with problems	4,7,8,10,11	1,2,3	A,C

Course Flow

Week	Topics	Study Materials
1	Traditional Finance Theories; Market Efficiency; and investor rationality
2	Efficient Market Hypothesis (EMH) and deviations from EMH
3	Financial decision making, investor psychology and common biases
4	Prospect theory
5	Overview of common behavioral biases in financial markets
6	Midterm I
7	Behavioral biases in financial markets (overconfidence and optimism)
8	Behavioral biases in financial markets (loss aversion, ambiguity aversion)
9	Behavioral biases in financial markets (anchoring, familiarity, equity home bias, conservatism, herding)
10	Midterm II
11	Market anomalies
12	Asset Pricing in the absence of market efficiency
13	Arbitrage: definition, arbitrage opportunities, limits to arbitrage
14	Aggregate consequences of behavioral biases such as bubbles and crashes
15	Final

Recommended Sources

Textbook

A survey of Behavioral Finance, Barberis and Thaler, 2003

Inefficient Capital Markets: An Introduction to Behavioral Finance, Schleifer, 2000

Additional Resources

Material Sharing

Documents	Textbook, class notes
Assignments	Homeworks (4 in number)
Exams	2 Midterms and Final

Assessment

IN-TERM STUDIES	NUMBER	PERCENTAGE
Mid-terms	2	60
Quizzes
Assignment	4	40
Total		100
CONTRIBUTION OF FINAL EXAMINATION TO OVERALL GRADE		40
CONTRIBUTION OF IN-TERM STUDIES TO OVERALL GRADE		60
Total		100

COURSE CATEGORY

Expertise/Field Courses

Course’s Contribution to Program

COURSE CATEGORY		Expertise/Field Courses

	COURSE'S CONTRIBUTION TO PROGRAM
	Program Learning Outcomes		Contribution
			1	2	3	4	5
	1. To understand the core principles of finance and to be able to apply them both nationally and internationally.					X
	2. To formulate solutions to finance problems by effectively using contemporary information technologies and up-to-date financial instruments.					X
	3. To judge the best possible outcome to problems that require ethical and social responsibility-based thinking by identifying stakeholders and weighing alternative solutions.		X
	4. To develop the necessary background to be able to work in multicultural and multilingual environments.				X
	5. To analyze the developments in financial markets by interpreting and distinguishing among the factors affecting them.						X
	6. To recognize management tools and models specific to multinational companies and to be able to apply them where necessary.						X
	7. To understand the structure of the global economic system and to be able to analyze how new developments will affect this structure.					X
	8. To be able to use critical thinking ability in decision making process.					X
	9. To develop and demonstrate the leadership, teamwork and communication skills that may be transferred to the lifelong learning process.
	10. To interpret environmental and sustainability issues by implementing quality management processes.						X

ECTS

Activities	Quantity	Duration (Hour)	Total Workload (Hour)
Course Duration (Including the exam week: 16x Total course hours)	15	3	45
Hours for off-the-classroom study (Pre-study, practice)	15	3	45
Mid-terms	2	15	30
Homework	4	4	16
Final examination	1	20	20
Total Work Load			156
Total Work Load / 25 (h)			6,24
ECTS Credit of the Course			6

None

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