EPOKA UNIVERSITY
FACULTY OF ECONOMICS AND ADMINISTRATIVE SCIENCES
DEPARTMENT OF BANKING AND FINANCE
COURSE SYLLABUS
2023-2024 ACADEMIC YEAR
COURSE INFORMATIONCourse Title: BEHAVIORAL FINANCE AND INVESTMENT MANAGEMENT |
| Code | Course Type | Regular Semester | Theory | Practice | Lab | Credits | ECTS |
|---|---|---|---|---|---|---|---|
| BAF 533 | B | 3 | 3 | 0 | 0 | 3 | 7.5 |
| Academic staff member responsible for the design of the course syllabus (name, surname, academic title/scientific degree, email address and signature) | NA |
| Main Course Lecturer (name, surname, academic title/scientific degree, email address and signature) and Office Hours: | Dr. Kristal Hykaj khykaj@epoka.edu.al , NA |
| Second Course Lecturer(s) (name, surname, academic title/scientific degree, email address and signature) and Office Hours: | NA |
| Teaching Assistant(s) and Office Hours: | NA |
| Language: | English |
| Compulsory/Elective: | Elective |
| Study program: (the study for which this course is offered) | Master of Science in Banking and Finance |
| Classroom and Meeting Time: | E211 |
| Code of Ethics: |
Code of Ethics of EPOKA University Regulation of EPOKA University "On Student Discipline" |
| Attendance Requirement: | N/A |
| Course Description: | The purpose of this course is to provide a strong foundation for the role of financial professionals on issues associated with behavioral finance matters and the relationship between behavioral finance and investment management. This course covers topics of Efficient Market Hypothesis, Investment Environment and Securities Trading, as well as topics of Portfolio and Capital Markets Theory, Security Analysis, Fixed Income Securities, and a thorough examination of Investment Management of these portfolios. This course will help students strengthen their knowledge in regards to the CFA (Certified Financial Analyst) level 1, 2 and 3 examinations. |
| Course Objectives: | Behavioral Finance and Investment Management: The purpose of this course is to provide a strong foundation for the role of financial professionals on issues associated with behavioral finance matters and the relationship between behavioral finance and investment management. This course covers topics of Efficient Market Hypothesis, Investment Environment and Securities Trading, as well as topics of Portfolio and Capital Markets Theory, Security Analysis, Fixed Income Securities, and a thorough examination of Investment Management of these portfolios. This course will help students strengthen their knowledge in regards to the CFA (Certified Financial Analyst) level 1, 2 and 3 examinations. |
|
BASIC CONCEPTS OF THE COURSE
|
| 1 | The purpose of this course is to provide a strong foundation for the role of financial professionals on issues associated with behavioral finance matters and the relationship between behavioral finance and investment management. This course covers topics of Efficient Market Hypothesis, Investment Environment and Securities Trading, as well as topics of Portfolio and Capital Markets Theory, Security Analysis, Fixed Income Securities, and a thorough examination of Investment Management of these portfolios. This course will help students strengthen their knowledge in regards to the CFA (Certified Financial Analyst) level 1, 2 and 3 examinations. |
|
COURSE OUTLINE
|
| Week | Topics |
| 1 | Intoduction. Psychology and market people. Investors, portfolio managers, analysts: are they rational? Bounded rationality in real market conditions.Decision-making process and behavioral biases.Simple experiments on anchoring. page 1-21 |
| 2 | Finance Decision Making. The decision-making process in reality. First level: rational managers. Managerial financing and investment decisions as rational responses to securities market mispricing. Second level: less than rational managers. Behavioral biases of managers. Capital structure choice: behavioral aspects. Investment policy: real investments and M&A deals. page 21-39 |
| 3 | Discounting. Demonstrating behavioral biases in action: Empirical evidence from emerging markets. page 39-62 |
| 4 | Learning. Theoretical foundations of efficient market hypothesis (EMH). 3 steps of efficient market hypothesis. Rational investors. Irrational investors: number and the correlation of trading strategies. The case with correlated trading strategies: arbitrage & close substitutes. The future of irrational investors. page 65-89 |
| 5 | Bubbles.First glance proofs of insider trade. Making money on insiders’ information (Seyhun, 1998). How to test the semi-strong form of EMH? Event-study as one of the key tests of price reaction to news. Price trends and reversals according to semi-strong form of EMH. Testing the absence of significant reaction to non-news (Scholes, 1972). Price reaction to block sales. Substitution effect. page 89-114 |
| 6 | Noise Traders. What investors want? Will noise trading die out? page 117-139 |
| 7 | Overconfidence and Optimism. Investor Optimism, False Hopes and the January Effect. page 141-163 |
| 8 | Mid term Exam. |
| 9 | Asset pricing under prospect theory. Prospect theory (Kahneman, Tversky). Bounded rationality. Expected Utility theory vs. prospect theory. Probability weighing function: π(p) instead of p. What does the introduction of the weighing functionmean? The weight of small probabilities. Lotteries as an example of overweighedprobability. The weight of large probabilities. Parametrization of utility function. Risktaking behavior. Endowment effect: experiments. Sentiment and asset pricing. page 165-183 |
| 10 | Overreaction and/or Underaction. Empirical tests of efficient market hypothesis. Testing quick and correct price reactions to the news. Testing no reaction of asset prices to no news. The value of stale information. 3 forms of EMH. page 185-200 |
| 11 | Momentum. What drives stock momentum? What is PEAD? page 200-218 |
| 12 | Insider Trading. First glance proofs of insider trade. Insider Trading Activity: An Empirical Investigation. page 239-266 |
| 13 | Equity premium puzzle. The Mehra and Prescott statement of the Equitu premium puzzle. page 269-281 |
| 14 | Review of the whole module and preparation for the final exam. |
| Prerequisite(s): | NA |
| Textbook(s): | Behavioural Finance William Forbes |
| Additional Literature: | NA |
| Laboratory Work: | NA |
| Computer Usage: | NA |
| Others: | No |
|
COURSE LEARNING OUTCOMES
|
| 1 | Comprehend the role of utility in financial decision making |
| 2 | Comprehend the contribution of behavior in the formation of financial turmoil. |
| 3 | Clearly identify the difference between modern finance theory and financial choices under the effect of behavioral patterns |
| 4 | Advance the knowledge in prospect theory |
| 5 | Understand the Equity premium puzzle. |
|
COURSE CONTRIBUTION TO... PROGRAM COMPETENCIES
(Blank : no contribution, 1: least contribution ... 5: highest contribution) |
| No | Program Competencies | Cont. |
| Master of Science in Banking and Finance Program | ||
| 1 | The students gain the ability to look at the problems of daily life from a broader perspective with an increased awareness of the importance of moral/ethical considerations and professional integrity in the workplace. | 3 |
| 2 | They develop a broader understanding of banking and finance including concepts, theories, and analytical tools that serve both in national and international markets. | 5 |
| 3 | They are able to apply advanced valuation models to estimate the price of different financial assets as well as evaluate multinational business firms. | 5 |
| 4 | They are able to apply different investment techniques and form portfolios that would generate higher returns by decreasing the unsystematic risk level. | 3 |
| 5 | They have advanced knowledge of the regulatory framework and functioning of the banking system, international banking, central banking and the conduct of monetary policy. | 2 |
| 6 | They are able to conduct advanced financial analysis and use the results in the decision-making process of business firms. | - |
| 7 | They are able to understand and use advanced economic theories and tools to solve economic problems in banking and financial services industry. | - |
| 8 | They have the ability to utilize accounting, financial and economic data as well as other information to solve complex and unstructured business problems by using advanced econometric and statistical models. | - |
| 9 | They develop their ability to think critically, do advanced and independent research, analyze, interpret results, draw conclusions, and communicate effectively, both individually and as part of a team. | - |
| 10 | They are provided with opportunities to acquire the necessary skills and competencies to move on to further study within the discipline. | - |
|
COURSE EVALUATION METHOD
|
| Method | Quantity | Percentage |
| Homework |
0
|
0
|
| Midterm Exam(s) |
0
|
40
|
| Project |
1
|
100
|
| Quiz |
0
|
0
|
| Attendance |
0
|
|
| Total Percent: | 100% |
|
ECTS (ALLOCATED BASED ON STUDENT WORKLOAD)
|
| Activities | Quantity | Duration(Hours) | Total Workload(Hours) |
| Course Duration (Including the exam week: 16x Total course hours) | 15 | 3 | 45 |
| Hours for off-the-classroom study (Pre-study, practice) | 13 | 5 | 65 |
| Mid-terms | 1 | 20 | 20 |
| Assignments | 1 | 15 | 15 |
| Final examination | 1 | 5 | 5 |
| Other | 0 | ||
|
Total Work Load:
|
150 | ||
|
Total Work Load/25(h):
|
6 | ||
|
ECTS Credit of the Course:
|
7.5 | ||
|
CONCLUDING REMARKS BY THE COURSE LECTURER
|
|
The purpose of this course is to provide a strong foundation for the role of financial professionals on issues associated with behavioral finance matters and the relationship between behavioral finance and investment management. This course covers topics of Efficient Market Hypothesis, Investment Environment and Securities Trading, as well as topics of Portfolio and Capital Markets Theory, Security Analysis, Fixed Income Securities, and a thorough examination of Investment Management of these portfolios. This course will help students strengthen their knowledge in regards to the CFA (Certified Financial Analyst) level 1, 2 and 3 examinations. |