A REVIEW ON PARADIGM SHIFT FROM CONVENTIONAL FINANCE TO BEHAVIORAL FINANCE

Nidhi Kumari, Ashok Sar

Abstract


People often make investment decisions involving behavioral dimensions. The era of conventional finance evolved around investor being rational and profit maximisers. Naturally, every individual think that they take decisions in a rational manner. But being emotional, we really fall prey to different psychological biases knowingly or unknowingly. The objective of this paper is to gain a deeper understanding of different behavioral biases through the overview of emerging literatures in the field with special reference to Herding bias, Overconfidence bias and Risk Tolerance bias. From the paper, the conclusion is that the emergence of the field of behavioral finance took place due to the limitations of conventional finance. This paper shall have a significant impact on different investors, practitioners, fund managers, investment analysts, financial experts and broking firms which will help in creating awareness and expanding knowledge about these dimensions across the financial industry.


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ISSN : 2251-1547