SVKM’s Narsee Monjee Institute of Management Studies

Name of School – SBM, Bangalore

Program: MBA Trimester: V

Course/Module : Behavioral Finance Module Code:

Teaching Scheme Evaluation Scheme

Lecture Practical Term End
Tutorial Internal Continuous
(Hours (Hours Examinations (TEE)
(Hours per Credit Assessment (ICA)
per per (Marks- 40)
week) (Marks - 60)
week) week) in Question Paper)
3 3 Marks Scaled to Marks Scaled to
- -
-60- -40-
Pre-requisite: Corporate Finance

Objectives:
After completion of the course, students would be able to understand the behavioural dimensions of
finance decisions and understand investment, financing, dividend and working capital decisions of
corporates.

Outcomes: After completion of the course, students would be able to :

1. Understand the fundamental heuristics, psychological biases, and emotional and social
factors that affect financial decision making
2. Explain the concepts of prospect theory, framing and mental accounting
3. Apply the neuro scientific and evolutionary underpinnings of observed financial behavior.
4. Analyse market inefficiencies and outcomes that arise from behavioral factors.
5. Analyse why investors behave the way they do and how they can become more rational
6. Analyse financial decision making of corporates from the perspective of behavioural aspects.

Detailed Syllabus: ( per session plan )

Session Description Duration

in Hours
1  Rational Market Hypothesis and the challenge of Behaviouralists – 1.5
 The Rise of the rational markets hypothesis-
 Impact on Wall street and the corporates-
 The Challenges of Behaviouralists –
 Synthesis and Future Horizons
Exposure to the Evolution of theory of finance and intellectual contribution of
financial economists
2  Foundations of Rational Finance – 1.5
 Expected Utility Theory-
 Modern Portfolio Theory-
 CAPM-Efficient Market Hypothesis
Understand and apply the concepts the rational finance Obtain a person’s utility
function

3 Heuristics and Biases 1.5

How the Human Mind works: the two systems –Familiarity and Related
Heuristics
To understand how mind works, Familiarity and related heuristics
 SVKM’s Narsee Monjee Institute of Management Studies

Name of School – SBM, Bangalore

4 Anchoring- Irrationality and adaptation- hyperbolic discounting 1.5

To understand and comprehend what is Anchoring, irrationality
5 Self-Deception 1.5
 Forms of overconfidence
 Causes of overconfidence
 other forms of self-deception
 the success equation-
 untangling skill and luck in business
To discuss Self-Deception and over confidence
6 Prospect Theory, Framing and Mental Accounting 1.5
To explain the Prospect theory
7 Error in Bernouli’s Theory 1.5
 Prospect Theory
 Framing
 Mental Accounting
To understand Framing & mental accounting

8 Inefficient Market Hypothesis 1.5

 Theoretical Foundations of the EMH-
 Theoretical challenges & Assessments to the EMH
To be able to evaluate the EMH

9 Emotional Factors and Social Forces 1.5

 Emotional and Social Forces
 Substance of Emotion
 Theories of Emotion
 Emotional style
 Emotions and investing
 Fairness
 Reciprocity and Trust
 Conformity
 Social Influence on Investment and Consumption
Evolutionary perspective on emotions, Theories of emotions, Emotional
Investing

10 Neuroscientific and Evolutionary Prospective 1.5

 Brain Basics
 Important Insights
 Adaptive Market Hypothesis
 Financial crisis and Limbic System
Understanding of Behavioral Portfolio Theory, Psychographic Models,
Overcoming Psychological Biases

11 Investor Behavior 1.5

 What the Heuristics and biases mean for financial decision making-
 Influence of emotions
 Implications of mental accounting
Analyse the investor behavior and biases

12 Behavioural portfolio theory 1.5

 SVKM’s Narsee Monjee Institute of Management Studies

Name of School – SBM, Bangalore

 Psychographic models
 Guidelines for overcoming psychological biases
Understand and comprehend the psychographic models

13 Market Outcomes 1.5

 Size effect and seasonality-
 Momentum and Reversals-
 Post earnings announcement drift
Analyse the market outcomes

14 The Value premium 1.5

 The equity premium puzzle
 Excessive Volatility
 Bubbles
 Behavioural asset pricing model
Estimate the volatility

15 Value Investing 1.5

 Central Tenets of Value Investing
 Investment
Analyse and critically examine the Value investing concepts

16 Evidence and prospects of value investing strategies of some well- known value 1.5
investors
Estimate the returns and critic the value investment strategies

17-18 Behavioural Corporate Finance 3

 Rational managers with irrational Investors approach-
 Valuation
 Capital budgeting
 Capital structure
 Dividend policy
 Agency conflicts and corporate governance
Critically examine the behavioural aspects of corporate decision making

19 Building a smart organization 1.5

 Challenges in building a psychologically smart organization
 Accounting
 Financial planning
 Incentives
 Information sharing
 Group processes
 Improving organizational decision making process
Understand what the smart organization is and process required to build one
20 Wisdom from other sources 1.5
 Wisdom of crowds
 Fooled by randomness
 Power laws
 Noise and performance in stock market
 Evolutionary analogy
 SVKM’s Narsee Monjee Institute of Management Studies

Name of School – SBM, Bangalore

 Animal spirits
 Halo effect and company performance
 Flaws of finance-
 The clash of cultures
 The Zurich axioms
 The Swiss wisdom
To discuss the wisdom from crowds
Total 30
Text Books:
Behavioral Finance, 1e, Prasanna Chandra, McGraw Hill, 2016

Reference Books:
 Behavioural Finance, William Forbes, Wiley Student, 2009.
 Personal Finance and Investments- A Behavioural Finance Perspective by Keith Redhead- from
Routledge Publication.
 Behavioural Finance- Insights into Irrational Minds and Markets – James Montier – John Wiley &
Sons, Ltd.
 Financial Risk Taking – Introduction to Psychology of Trading and Behavioural Finance- Mike Elvin
– John Wiley & sons, Ltd.
 Behavioural Finance: Investors, Corporations and Markets, Baker & Nofsinger, Wiley, 2012.
 Thinking Fast and Slow, Daniel Kahneman, Penguin, 2015.
 Nudge: Improving Decisions About Health, Wealth and Happiness, Richard Thaler, Penguin, 2009
Any other information :
Total Marks of Internal Continuous Assessment (ICA) : 60 Marks
Distribution of ICA Marks :

Description of ICA Marks

Class Quizzes (2) 20
Course Project & Viva 20
Mid-Term 20
Term-End Exam 40
Total Marks : 100

_________ ____________
Signature Signature
(Prepared by Concerned Faculty/HOD) (Approved by Dean)