Monday, January 17, 2011

Behavioral Finance



"Behavioral Finance" , is more of a science and art  then finance , it deal with the behavioural aspect of  humans, in the context of finance . it tries to explain things like

Why in a bull market investor is willing to sell  the winners in his portfolio , when he clinches on to the looser


Why is a investor in a bull market willing to buy when the valuations are high  , but is uncertain in a bearish market  , when the same stocks are available at attractive discounts.

Why do even knowledgeable fund managers get caught up in the herd mentality and take bets on already very pricey stocks

Fear and Greed are the emotions that makes the market what they are ,extremely unpredictable and highly irrational .

In the Indian context , i can say that the greed of few like Harshad Mehta, Ketan Parikh , have caused far more fear among the investor .

So stock markets end up being a function of human mind and emotions rather than financial fundamentals


In India, Parag Parikh is a proponent of Behavioral Finance, with a couple of books to his credit . you can watch and read more about Parag @ ppfas.com

 Image : FreeDigitalPhotos.net,Photographer: Boaz Yiftach

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