Behavioral Finance and Asset Prices: The Influence of Investor's Emotions

The financial markets have experienced high levels of volatility in recent decades, driven by factors such as investor emotions, market sentiment, the news, and external factors. This volatility is too strong to be fully justified by changes in fundamentals, and asset pricing and behavioral finance are key areas of focus.

Format: Hardback
Length: 214 pages
Publication date: 06 April 2023
Publisher: Springer International Publishing AG

In recent decades, the financial markets have been plagued by a series of crises, shocks, and disruptive events, resulting in unprecedented levels of volatility. While some argue that this volatility can be attributed solely to changes in fundamental factors, it is clear that there are other forces at play. This volume delves into these critical issues, with a particular emphasis on asset pricing and behavioral finance.

It is evident that the financial price assets of the 2020s are influenced by a multitude of factors, in addition to traditional fundamentals. Investor emotions, market sentiment, news events, and external factors such as uncertainty have all played a significant role in shaping the market landscape. This has been particularly evident during the ongoing coronavirus pandemic, which has fundamentally altered the way we perceive and interact with financial markets.

One of the key themes explored in this volume is the role of investor emotions in driving financial market volatility. Research has shown that individuals tend to make decisions based on their emotional state, rather than solely on rational analysis. This can lead to irrational exuberance or panic, which can cause sudden price fluctuations in assets. For example, during the 2008 financial crisis, investors were driven by fear and panic, leading to a sharp decline in asset prices.

Similarly, market sentiment plays a crucial role in shaping financial market behavior. Positive market sentiment can lead to a rally in asset prices, while negative sentiment can cause a sell-off. For instance, during the COVID-19 pandemic, investors were concerned about the economic impact of the virus, leading to a sharp decline in stock prices.

News events also have a significant impact on financial market volatility. Economic data releases, political developments, and natural disasters can all cause sudden price fluctuations in assets. For example, the announcement of a new COVID-19 vaccine can lead to a rally in healthcare stocks, while a negative economic report can cause a sell-off in financial stocks.

External factors such as uncertainty also play a key role in shaping financial market volatility. Economic uncertainty, political instability, and geopolitical events can cause investors to become cautious and sell off their assets. For example, the ongoing trade tensions between the United States and China have caused uncertainty in the global economy, leading to a decline in stock prices.

In conclusion, the financial markets have experienced a series of crises, shocks, and disruptive events in recent decades, resulting in unprecedented levels of volatility. While some argue that this volatility can be attributed solely to changes in fundamental factors, it is clear that there are other forces at play. Investor emotions, market sentiment, news events, and external factors such as uncertainty all play a significant role in shaping the market landscape. Understanding these factors is crucial for investors and policymakers alike, as it can help them make informed decisions and mitigate the risks associated with financial market volatility.

Weight: 524g
Dimension: 235 x 155 (mm)
ISBN-13: 9783031244858
Edition number: 1st ed. 2023