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This book explains how investor behavior, from mental accounting to the combustible interplay of hope and fear, affects financial economics. The transformation of portfolio theory begins with the identification of anomalies. Gaps in perception and behavioral departures from rationality spur momentum, irrational exuberance, and speculative bubbles. Behavioral accounting undermines the rational premises of mathematical finance. Assets and portfolios are imbued with “affect.” Positive and negative emotions warp investment decisions. Whether hedging against intertemporal changes in their ability to bear risk or climbing a psychological hierarchy of needs, investors arrange their portfolios and financial affairs according to emotions and perceptions. Risk aversion and life-cycle theories of consumption provide possible solutions to the equity premium puzzle, an iconic financial mystery. Prospect theory has questioned the cogency of the efficient capital markets hypothesis. Behavioral portfolio theory arises from a psychological account of security, potential, and aspiration.

Finance. --- Risk management. --- Capital market. --- Behavioral economics. --- Risk Management. --- Capital Markets. --- Behavioral/Experimental Economics. --- Investments --- Psychological aspects. --- Decision making. --- Behavioral economics --- Behavioural economics --- Capital markets --- Market, Capital --- Finance --- Financial institutions --- Loans --- Money market --- Securities --- Crowding out (Economics) --- Efficient market theory --- Insurance --- Management

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This book rehabilitates beta as a definition of systemic risk by using particle physics to evaluate discrete components of financial risk. Much of the frustration with beta stems from the failure to disaggregate its discrete components; conventional beta is often treated as if it were "atomic" in the original Greek sense: uncut and indivisible. By analogy to the Standard Model of particle physics theory's three generations of matter and the three-way interaction of quarks, Chen divides beta as the fundamental unit of systemic financial risk into three matching pairs of "baryonic" components. The resulting econophysics of beta explains no fewer than three of the most significant anomalies and puzzles in mathematical finance. Moreover, the model's three-way analysis of systemic risk connects the mechanics of mathematical finance with phenomena usually attributed to behavioral influences on capital markets. Adding consideration of volatility and correlation, and of the distinct cash flow and discount rate components of systematic risk, harmonizes mathematical finance with labor markets, human capital, and macroeconomics.

Finance. --- Economic theory. --- Behavioral economics. --- Behavioral Finance. --- Behavioral/Experimental Economics. --- Economic Theory/Quantitative Economics/Mathematical Methods. --- Econophysics. --- Capital assets pricing model. --- Capital asset pricing model --- CAPM (Capital assets pricing model) --- Pricing model, Capital assets --- Capital --- Finance --- Investments --- Economics --- Statistical physics --- Mathematical models --- Statistical methods --- Behavioral economics --- Behavioural economics --- Economic theory --- Political economy --- Social sciences --- Economic man --- Economics. --- Psychological aspects.

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• Reference Manager
• EndNote
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This book explains how investor behavior, from mental accounting to the combustible interplay of hope and fear, affects financial economics. The transformation of portfolio theory begins with the identification of anomalies. Gaps in perception and behavioral departures from rationality spur momentum, irrational exuberance, and speculative bubbles. Behavioral accounting undermines the rational premises of mathematical finance. Assets and portfolios are imbued with "affect." Positive and negative emotions warp investment decisions. Whether hedging against intertemporal changes in their ability to bear risk or climbing a psychological hierarchy of needs, investors arrange their portfolios and financial affairs according to emotions and perceptions. Risk aversion and life-cycle theories of consumption provide possible solutions to the equity premium puzzle, an iconic financial mystery. Prospect theory has questioned the cogency of the efficient capital markets hypothesis. Behavioral portfolio theory arises from a psychological account of security, potential, and aspiration.

Money market. Capital market --- Finance --- Industrial psychology --- Production management --- gedrag (mensen) --- financieel management --- financiële markten --- risk management --- Financial risk management. --- Capital market. --- Experimental economics. --- Risk Management. --- Capital Markets. --- Experimental Economics.