Behavioural Finance

Insights into Irrational Minds and Markets

By: James Montier

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Product code: 15664
ISBN: 0470844876
212 pages
Format: Hb
Published by: John Wiley & Sons, 2002, 1st edition

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Behavioural Finance - front page cover image

Description of Behavioural Finance

A concrete guide that links the theory of behavioral finance with applications in financial products.

Behavioral finance is a rapidly expanding field, with major implications for the way in which the investment process is conducted. Behavioural Finance links the concepts of behavioral finance to measurable variables and smarter investment decision making. Comprehensive coverage relating theory to practical investment analysis provides a usable, practical guide for real-world situations.

Behavioural Finance - Chapter headings

Introduction

1. Psychological Foundations
Introduction
Biases of Judgement or Perception is Reality
Errors of Preference or There is No Such Thing as Context-free Decision Making
Conclusions

2. Imperfect Markets and Limited Arbitrage
Introduction
Ketchup Economics
Efficiency and LOOP
Stock Market
Other Markets
Imperfect Substitutes
Limited Arbitrage
Positive Feedback Trading
Risk Management and Limited Arbitrage
On the Survival of Noise Traders
Informational Imperfections
Conclusions

3. Style Investing
Introduction
The Data
The History
Potential Gains to Style Rotation
Life Cycle of an Investment Style
Value vs. Growth: Risk or Behavioural?
Style Rotation
Quantitative Screens
Timing the Switch
Conclusions

4. Stock Valuation
Introduction
Keynes' Beauty Competition
The (Ir)relevance of Fundamentals
Valuation and Behavioural Biases
Cost of Capital
Factors from Limited Arbitrage
An Analyst's Guide

5. Portfolio Construction and Risk Management
Introduction
Covariances
Correlations
Distribution of Returns
Fat Tails or Outliers?

6. Asset Allocation
Introduction
Markets and Fundamentals
Dividend Yield, Spreads and Ratios
Earnings Yield, Spreads and Ratios
Payout Ratio
The Equity Risk Premium
Should Corporate Financiers be Running TAA?
Market Liquidity
Crashes as Critical Points

7. Corporate Finance
Introduction
Irrational Managers/Rational Markets
Rational Managers/Irrational Markets
Conclusions

8. The Indicators
Introduction
Liquidity Measures
Sentiment Measures
Asset Allocation Measures
Earnings Measures
Technical Measures
Others

Final Thoughts
Bibliography
Index

Authobiography of James Montier

James Montier (London, UK) is the Director of Global Strategy at Dresdner Kleinwort Watterstein. Prior to this, he was director of investment strategy for Old Mutual Securities.