Behavioral Finance Vs Behavioral Finance

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Introduction Although, behavioral finance and market efficiency are topics that may seem separate and different, they both work conjointly. Finance has always been imagined to be a subject of numbers, calculations, spreadsheets and everything that encompasses investing. By glancing over the title of this paper, one could assume that the topic is related to a psychology or behavioral class more than finance. However, by researching the topic, it is clear that finance relies on behavioral sciences and psychological understanding more than expected. In the following paper, behavioral finance will be explained properly and the different examples of behavioral finance will be listed along with some examples to illustrate the significance of …show more content…

Behavioral finance is a topic that builds a bridge that connects two different fields together and enables one field, finance, to evolve and expand into the world of psychology to enable a more efficient and stable market. To simply explain behavioral finance, it is a psychological method to better understand how individuals choose their investment outlets and make decisions financially (Qawi, 2010). With such information, a better financial environment can be created to simplify the way individuals invest their savings or spend their monies. Behavioral finance and market efficiency are two issues that are currently debated amongst the investors and economists. The reasoning behind the heightened interest towards behavioral finance and market efficiency is for understanding whether the share price in the market reflects the company’s value in the marketplace. Furthermore, it helps investors understand the types of trading strategy that would be most efficient in the market and how to take advantage of these specific shares (Phung,

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