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BEHAVIORAL FINANCE - Coggle Diagram
BEHAVIORAL FINANCE
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Behavioral finance is a field of finance that proposes psychology-based theories to explain stock market anomalies such as severe rises or falls in stock price. Within behavioral finance, it is assumed the information structure and the characteristics of market participants systematically influence individuals' investment decisions as well as market outcomes.
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Anyone knowledgeable in financial market understands that there are numerous variables that affect prices in the securities markets. Investors’ decisions to buy or sell may have a more distinct margin affect impact on market value than favorable earnings or promising products.
The role of behavioral finance is to help market analysts and investors understand price movements in the absence of any intrinsic changes on the part of companies or sectors.
It provides an overlay to the standard theory. Theory it provides a framework to understand “non-rational” investor and market behaviors.