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Qualitative Research in Financial Markets

ISSN : 1755-4179

Article publication date: 31 May 2019

Issue publication date: 24 April 2020

This paper participates in the debate on market efficiency and correct approach for asset pricing through a comprehensive review of literature in favor, as well as against the long held belief of market efficiency. The purpose of this paper is to understand emerging trends in behavioral finance and establish its future potential as a mainstream alternative theory of asset pricing.

Design/methodology/approach

The review and discussion of literature is mainly divided into three different sections that are –theories supporting efficient market hypothesis (EMH); studies providing evidences from the stock market on the failure of EMH and studies on behavioral finance, discussing separately investors’ behavioral biases keeping in mind their effect on stock prices; and providing empirical evidences on the effect of investor sentiment on stock prices.

The review of literature from both the point of views has helped in understanding the market efficiency issue and changing dynamics of asset pricing approach. This is achieved by highlighting the gaps in the concept of market efficiency and also suggesting how these gaps can be bridged with a superior approach such as behavioral finance. Through further discussion of emerging trends in behavioral finance, the paper also points out gaps and how these can be abridged, for behavioral finance to be accepted as a mainstream alternative approach to EMH.

Originality/value

This is an extensive and one of a kind study that discusses market efficiency through discussion of EMH and behavioral finance side by side. With the help of such a study, researchers can precisely understand the need and can focus on the future course of action to make behavioral finance a mainstream approach to asset pricing.

  • Behavioral finance
  • Efficient market hypothesis
  • Behavioural biases
  • Market inefficiency

Sharma, A. and Kumar, A. (2020), "A review paper on behavioral finance: study of emerging trends", Qualitative Research in Financial Markets , Vol. 12 No. 2, pp. 137-157. https://doi.org/10.1108/QRFM-06-2017-0050

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The Simple Macroeconomics of AI

This paper evaluates claims about large macroeconomic implications of new advances in AI. It starts from a task-based model of AI’s effects, working through automation and task complementarities. So long as AI’s microeconomic effects are driven by cost savings/productivity improvements at the task level, its macroeconomic consequences will be given by a version of Hulten’s theorem: GDP and aggregate productivity gains can be estimated by what fraction of tasks are impacted and average task-level cost savings. Using existing estimates on exposure to AI and productivity improvements at the task level, these macroeconomic effects appear nontrivial but modest—no more than a 0.66% increase in total factor productivity (TFP) over 10 years. The paper then argues that even these estimates could be exaggerated, because early evidence is from easy-to-learn tasks, whereas some of the future effects will come from hard-to-learn tasks, where there are many context-dependent factors affecting decision-making and no objective outcome measures from which to learn successful performance. Consequently, predicted TFP gains over the next 10 years are even more modest and are predicted to be less than 0.53%. I also explore AI’s wage and inequality effects. I show theoretically that even when AI improves the productivity of low-skill workers in certain tasks (without creating new tasks for them), this may increase rather than reduce inequality. Empirically, I find that AI advances are unlikely to increase inequality as much as previous automation technologies because their impact is more equally distributed across demographic groups, but there is also no evidence that AI will reduce labor income inequality. Instead, AI is predicted to widen the gap between capital and labor income. Finally, some of the new tasks created by AI may have negative social value (such as design of algorithms for online manipulation), and I discuss how to incorporate the macroeconomic effects of new tasks that may have negative social value.

Paper prepared for Economic Policy. I am grateful to Can Yeşildere for phenomenal research assistance, and to Leonardo Bursztyn, Mert Demirer, Lauren Fahey, Roberto Galbiati, Isabelle Méjean, Shakked Noy, Sida Peng, Julia Regier, and Whitney Zhang as well as participants in the MIT Solow Memorial conference and the Economic Policy conference for useful comments. I am especially grateful to my discussants, David Hémous and Benoît Coeuré, for insightful comments and suggestions. I thank Pamela Mishkin and Daniel Rock for generously sharing their data on AI exposure. I am also heavily indebted to my collaborators on several projects related to these topics, David Autor, Simon Johnson and Pascual Restrepo, from whom I learned a great deal and who have also given me very useful comments on the current draft. Financial support from the Hewlett Foundation is gratefully acknowledged. All remaining errors are mine. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.

MARC RIS BibTeΧ

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IMAGES

  1. (PDF) What Is Behavioral Finance?

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COMMENTS

  1. Behavioral Finance Experiments: A Recent Systematic Literature Review

    Conlisk (1996) presented a number of papers dealing with limited rationality; Duxbury (2015) made a research of perceptions provided by experimental studies examining financial decisions and market behavior; whereas Libby et al. (2002) compiled a series of experimental papers in finance to illustrate how experiments can be conducted successfully.

  2. (PDF) AN IMPACT OF BEHAVIOURAL FINANCE ON INVESTMENT ...

    Design/Methodology/Approach: The study used a literature review method understanding the heuristics and biases central to behavioural finance and advocacy to make investment decisions. The paper ...

  3. Behavioral Finance Experiments: A Recent Systematic Literature Review

    Abstract. This article aims to elaborate a systematic literature review (SLR) on the subject of experiments in behavioral finance, including papers published between 2014 and 2018. Methodology involved the careful selection of articles published in Web of Science and Scopus databases, and bibliometric analysis was applied.

  4. A systematic review of ordinary people, behavioural financial biases

    1. Introduction. Recently, Behavioural Finance and Behavioural Economics have been jointly fast-growing fields of research, which encompass both academia and business (Bikas et al., Citation 2013; Baddeley, Citation 2013). The volume of papers published related to Behavioural Finance has risen exponentially since 2010, both with top referenced journals and other less referenced publications.

  5. (PDF) Behavioral Finance: A Conceptual Review

    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.

  6. Journal of Behavioral Finance

    Peer Review Policy: All research articles in Journal of Behavioral Finance have undergone rigorous peer review, based on initial editor screening and anonymous refereeing by two anonymous referees. Publication office: Taylor & Francis, Inc., 530 Walnut Street, Suite 850, Philadelphia, PA 19106. Authors can choose to publish gold open access in ...

  7. 33698 PDFs

    Explore the latest full-text research PDFs, articles, conference papers, preprints and more on BEHAVIORAL FINANCE. Find methods information, sources, references or conduct a literature review on ...

  8. Journal of Behavioral Finance: Vol 25, No 2 (Current issue)

    Journal of Behavioral Finance, Volume 25, Issue 2 (2024) See all volumes and issues. Volume 25, 2024 Vol 24, 2023 Vol 23, 2022 Vol 22, 2021 Vol 21, 2020 Vol 20, 2019 Vol 19, 2018 Vol 18, 2017 Vol 17, 2016 Vol 16, 2015 Vol 15, 2014 Vol 14, 2013 Vol 13, 2012 Vol 12, 2011 Vol 11, 2010 Vol 10, 2009 Vol 9, 2008 Vol 8, 2007 Vol 7, 2006 Vol 6, 2005 ...

  9. Behavioural Finance: A Synthetic Review of Literature and Future ...

    It ignites the spark of behavioural finance, explaining irrational exuberance and anomalies in asset price. There are two possible directions for further research, either backwards or forwards. Backward research refers to neural mechanisms for financial decision-making while forward research is about developing sound behavioural asset pricing ...

  10. Journal of Behavioral and Experimental Finance

    The journal welcomes full-length and short letter papers in the area of behavioral finance and experimental finance. The focus is on rapid dissemination of high-impact research in these areas. represent lenses and approaches through which we can view financial decision-making. The aim of the journal is to publish high quality research in all ...

  11. Behavioural Finance: The Emergence and Development Trends

    Selection and peer review under the responsibility of Prof. Dr. Kobus Maree, University of Pretoria, South Africa. 871 Egidijus Bikas et al. / Procedia - Social and Behavioral Sciences 82 ( 2013 ) 870 â€" 876 Behavioural finance is the result of the structure of various sciences (Ricciardi & Simon, 2000): psychology a science that analyses ...

  12. Behavioural finance: the role of psychological factors in financial

    - The purpose of this paper is to introduce the special issue of Review of Behavioural Finance entitled "Behavioural finance: the role of psychological factors in financial decisions"., - The authors present a brief outline of the origins of behavioural economics; discuss the role that experimental and survey methods play in the study ...

  13. PDF Behavioral Finance As an Emerging Trend in Shaping Financial Decision

    This paper provides an overview of the key concepts, theories, and empirical findings in behavioural ... JETIR2307484 Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir.org e777 ... Behavioral finance has significant implications for investment strategies by recognizing that investors are prone

  14. Behavioral Finance: Articles, Research, & Case Studies

    Behavioral finance replaces the traditional and idealized idea of rational decision makers with real and imperfect people who have social, cognitive, and emotional biases. The resulting inefficiencies in the capital markets can create opportunities for investment managers and firms. Closed for comment; 0 Comments. 1.

  15. PDF Trends in Behavioral Finance: A Literature Survey

    in this domain need a clear view of the direction of research in behavioral finance. This review paper provides a background and evolution of behavioral finance over a period of time and also suggests the prospective future research scope. behavioral finance, behavioral biases, expected utility, efficient market. Received: 16th July 2021

  16. A review paper on behavioral finance: study of emerging trends

    This paper participates in the debate on market efficiency and correct approach for asset pricing through a comprehensive review of literature in favor, as well as against the long held belief of market efficiency. The purpose of this paper is to understand emerging trends in behavioral finance and establish its future potential as a mainstream ...

  17. PDF A Study on Behavioral Finance in Investment Decisions of Investors in

    (NichlasBarberis,2002) In this research paper Behavioral finance argues that some financial phenomena can ... Behavioral Finance: An Insight intoInvestor'sPsyche. IOSRJournalofEconomicsand Finance. 7. ATHUR, A. D. (2013). EFFECT OF BEHAVIOURAL BIASES ON INVESTMENT DECISIONS OF INDIVIDUALINVESTORSINKENYA. 8. BIRĂU, F. R. (n.d.).

  18. Full article: Behavioral finance factors and investment decisions: A

    1. Introduction. The traditional finance theory assumes that investors always make rational decisions based on complete information, but behavioral finance argues that investors are influenced by their emotions, biases, and cognitive limitations (Almansour & Arabyat, Citation 2017).The debate between modern finance theory and behavioral finance theory on the influence of non-financial factors ...

  19. (PDF) Literature review of Behavioral Finance: Then and Now

    Purpose-The paper aims to organize and take a supply from past to present research on Behavioral finance by reviewing available literature to provide quick and easy access for future researchers.

  20. Review of Behavioral Finance

    Empirical, scientific or clinical research; Papers with a practical focus; Viewpoint. Covers any paper where content is dependent on the author's opinion and interpretation. This includes journalistic and magazine-style pieces. Technical paper. Describes and evaluates technical products, processes or services. Conceptual paper.

  21. MONOGRAPH / BEHAVIORAL FINANCE BEHAVIORAL FINANCE

    Meir's research books and papers all provide invaluable insights on investment decision making for amateurs and professionals alike. As such, ... managers has been highly influenced by his research. Behavioral finance has blossomed—and justly so. It is a key to the justi-fication for active portfolio management. If investors were perfectly ...

  22. Behavioral economics

    Behavioral Finance attempts to explain the reasoning patterns of investors and measures the influential power of these patterns on the investor's decision making. The central issue in behavioral finance is explaining why market participants make irrational systematic errors contrary to assumption of rational market participants.

  23. Impact of behavioral biases on investment decisions and the moderation

    Semantic Scholar extracted view of "Impact of behavioral biases on investment decisions and the moderation effect of financial literacy; an evidence of Pakistan." ... Purpose The finance literature is awash with papers bordering on the classical assumption that investors are rational in their decision ... The current research determines the ...

  24. The Simple Macroeconomics of AI

    The paper then argues that even these estimates could be exaggerated, because early evidence is from easy-to-learn tasks, whereas some of the future effects will come from hard-to-learn tasks, where there are many context-dependent factors affecting decision-making and no objective outcome measures from which to learn successful performance.

  25. (PDF) UNDERSTANDING BEHAVIORAL FINANCE

    UNDERST ANDING BEHA VIORAL FINANCE. Abhijit Ranjan Das* Dr. Soma Panja **. Abstract. Purpose- The basic objective of this paper is to review the insights of behavioral finance. It will. also focus ...

  26. UCLA Anderson Master of Science in Business Analytics (MSBA)

    If you're driven to apply your data modeling, mathematics and coding skills to solve major business problems, you may be the right fit for our Master of Science in Business Analytics Program (MSBA) — and for the many top companies that hire our graduates.These organizations seek to draw insights from the massive amounts of data they have accumulated, but they need the right people to ...

  27. World Online Ranking of Best Biology and Biochemistry ...

    You can learn more about the methodology used to create this report here.. About Research.com. All research was coordinated by Imed Bouchrika, Ph.D., a computer scientist with a well-established record of collaboration on a number of international research projects with different partners from the academic community.His role was to make sure all data remained unbiased, accurate, and up-to-date.

  28. Institute of Education Sciences (IES): National Center for Education

    · Toolkits, Guidelines, Compendia, Review Papers, and Curated Data Resources. NCSER Competitions Special Education Research Grants Program (ALN 84.324A). Under this competition, NCSER will consider only applications that address the following topic: · Education Systems. Research Training Programs in Special Education (ALN 84.324B).