03: Investor Psychology: A Behavioural Explanation of Six Finance Puzzles

Wetenschappelijke publicatie
Date 18 February 2004

This paper surveys the behavioural finance explanation of six puzzles of finance. These puzzles are: stock price under- and overreactions, excessive trading and the gender puzzle, financial hypes and panic, the equity premium puzzle, the winner/loser puzzle and the dividend puzzle. After an introduction of prospect theory and a description of heuristics and biases in the judgment of information, the paper applies behavioural insights to explain the puzzles. Key words: psychology, behavioural finance JEL codes: G1, D 80