The Fundamentals of Behavioral Finance

The Fundamentals of Behavioral Finance

Our behavioral finance training provides an in-depth analysis of the psychological and social biases influencing investment decisions and financial market trends. It explains the difference between behavioral finance and the efficient market theory and explores cognitive, emotional, and social biases.

Biases and Investment Decisions

Participants will study market anomalies and examine how various biases can influence market performance, including during bubbles and crashes. They will also be introduced to the specific challenges faced by individual and institutional investors and learn approaches to mitigate these biases.

Behavioral Finance vs. Efficient Market Theory

We will compare behavioral finance with the classical efficient market theory. This section will explore the limitations of traditional models and illustrate how cognitive biases explain certain inefficiencies observed in financial markets.

Impact of Behavioral Biases on Portfolio Management

The training also covers the impact of behavioral biases in the client-financial advisor relationship, offering strategies for systematic and adaptable management. Participants will explore how these biases affect portfolio construction and delve into ways to improve the accuracy of financial analysts' forecasts.

Case Studies and Practical Applications

Focusing on practical application, participants will engage in case studies and quizzes to concretely apply their knowledge. The training concludes with an exploration of the implications of behavioral finance in governance and investment committee decisions.

Training Objectives

• Understand the contribution of behavioral finance to classical financial theory.
• Analyze financial market behavior from a behavioral finance perspective.
• Study investor behavior through the principles of behavioral finance.
• Assess the impact of behavioral finance on the client-advisor relationship.
• Examine the influence of behavioral biases on portfolio construction.
• Understand their effect on financial analysts' forecasts.
• Interpret the impact of psychological biases on financial statement analysis in board meetings.
• Explore the links between behavioral finance and corporate governance.

Target Audience

• Finance professionals
• Investment advisors
• Individual investors
• Institutional investors
• Investment committees
• Finance students
• Anyone looking to understand and identify their behavioral biases to improve investment decisions

Training Duration

• 2 days (14 hours)

Training Program: Behavioral Finance and Psychological Biases

I. Definition, Disruption, and Contribution of Behavioral Finance

• Behavioral finance vs. efficient market theory
• Definition and characteristics of cognitive biases
• Definition and characteristics of emotional biases
• Definition and characteristics of social biases

Practical Case:

Identifying the nature of a bias based on a given scenario

II. Behavioral Finance and Financial Market Behavior

• Market anomalies: Momentum, Anchoring bias, Availability bias, Disposition effect
• Bubbles: Overconfidence, Regret aversion, Hindsight bias, Self-attribution bias, Representativeness bias
• Crashes: Anchoring bias, Disposition effect, Representativeness bias
• Value vs. Growth: The "value" anomaly, The halo effect

Quiz

III. Behavioral Finance and Investor Behavior

• Biases affecting individual investor decision-making
• Biases affecting institutional investor decision-making
• Approaches to mitigate or correct these biases

Practical Case:

Identification and analysis of biases and proposing solutions based on a given scenario

IV. Impact of Behavioral Finance on the Client-Advisor Relationship

• Identifying client objectives
• Assessing risk tolerance based on biases
• Following a systematic management approach
• Accounting for change

Quiz:

Identifying specific biases in a proposed scenario

V. How Behavioral Biases Affect Portfolio Construction

• Naive diversification
• Familiarity bias
• Presentation bias
• Status quo bias
• National bias

Quiz:

Identifying specific biases in a proposed scenario

VI. How Behavioral Biases Affect Financial Analysts' Forecasts

• Overconfidence
• Illusion of knowledge
• Hindsight bias
• Representativeness bias
• Availability bias
• Self-attribution bias
• Corrective actions

Practical Case:

Identification and analysis of biases and proposing solutions based on a given scenario

VII. How Behavioral Biases Affect Financial Statement Interpretation in Board Meetings

• Anchoring and adjustment bias
• Presentation bias
• Availability bias
• Self-attribution bias
• Corrective actions

Practical Case:

Identification and analysis of biases and proposing solutions based on a given scenario

VIII. Behavioral Finance and Governance

• Biases affecting investment committee decisions
• Characteristics of a committee as a group
• Social proof bias
• Corrective actions

Practical Case:

Identification and analysis of biases and proposing solutions based on a given scenario