London Financial Studies Profile at MoneyScience
More information about this course.
Modern finance portrays investment decision-making as rational choice. However, pure rationality does not describe how many decisions are truly made. This course examines (1) the behavioural strategies that amateur and expert investors rely upon to make decisions, (2) the structure and speculative dynamics of returns in world equity markets (from a psychological perspective), and (3) the practical implications of behavioural finance. The course includes a discussion of common psychological errors such as wishful thinking, extrapolation bias, tunnel vision, inertia, lack of self-discipline and emotional distortion.
Who The Course is For
- Securities analysts and portfolio managers
- Financial advisors relationship managers, private banking specialists
- Regulators
- Management consultants and corporate executives
- Affluent investors
Prior Knowledge
The course is self-contained but prior knowledge of standard concepts in modern finance (e.g., portfolio theory, CAPM, beta, efficient markets) is required.
This program is eligible for 16 Continuing Education credit hours from the CFA Institute. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.
Day One
Foundations of Behavioural Finance
Introduction
- Stock market bubbles
- Sources of price volatility
- Bubble psychology, the role of the news media
- Why rational arbitrage often fails
Judgement
- Heuristics and biases, mental frames
- Intuitive prediction, causal attribution
- Over- and underconfidence, information overload
- Clinical versus actuarial judgement, the seven sins of memory
- Why people do or do not learn from experience
Choice
- Utility theory, prospect theory, risk tolerance, loss aversion
- Status-quo bias, inertia, escalation of commitment
- Regret and disappointment
- Mental accounting, preference reversals
- Cultural factors in investor decision-making
Emotions
- Hope and fear, anxiety, stress, denial
- Mood management, self-discipline
- Illusions, unrealistic optimism
Social and Investor Psychology
- Familiarity bias
- Trust, performance benchmarks
- Conformism, herding
- Impression management
- How to improve committee decision-making
- “Fatal attractions” for money managers
Day Two
Equity Investment Strategy
Predictability in World Equity Markets
Reversals: Overreaction
- Do world stock markets overreact?
- Contrarian and momentum strategies
- Overreaction-to-earnings
- The nature, quality and value of analyst and economist forecasts
Trends: Underreaction
- Investor and analyst perceptions of corporate earnings
- Price, earnings, industry and style momentum
The management of earnings and earnings expectations
- Types of earnings management
- The obsession with quarterly earnings targets
- Earnings, cash flows, and accruals
- How consecutive positive earnings surprises drive up stock prices
- Corporate communication and information disclosure
Risk and return
- The market premium, the size premium, the value premium
- Seasonality in returns
- The risk of financial distress
- Analyst coverage
- Trading volume
- Growth at a reasonable price
- Developed vs. emerging markets
- Performance in bull and bear markets
