Are students acting rational?: A study in Behavioural finance.
Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Finance taught in schools generally starts with the efficient market hypothesis, which holds the assumptions of rational investors and markets where all information available is reflected. In recent years however, a lot of critique has been given to efficient markets and its assumptions of rationality. The greatest reason to this is because of crashes and irregularities in the market.
The field of behavioural finance has been in existence for many years but is not as established as the efficient market hypothesis. It says that investors may act irrational and are mostly trying to explain the reasons why. People’s behaviour is being closely studied in order to see patterns of behaviour and this has resulted in different heuristics and biases. Heuristics are instances that come to mind when making a decision and differ a lot depending on what kind of decision you are making.
Since there are many different heuristics, this thesis only focused on one: the affect heuristic. The method was constructed in a specific way in order to show if the students showed affect in their answers. Also, a check for home bias was made.
This thesis presents the behaviour of two different groups of students, finance students from Sweden and MBE-students from Germany. It was proved that both of the groups were acting irrational in their investment decisions. The reason to their irrationality is both because the method was constructed in a way to strategically mislead them but also because of the data collection. There were also some differences noticed depending on age groups, former studies in finance and work experience in finance. The affect heuristic was clearly shown in the answers by both groups of students.
A home bias was also noticed in the answers. It was proven that 10,3 percent of the Swedish students invested in Swedish companies in both their first and second choice, even though the three best companies were German. None of the German Students decided to invest in a Swedish company in both the first and second choice.
Place, publisher, year, edition, pages
Behavioural finance, Home bias, Affect heuristic
IdentifiersURN: urn:nbn:se:hj:diva-15219OAI: oai:DiVA.org:hj-15219DiVA: diva2:420532
UppsokSocial and Behavioural Science, Law
Eklund, JohanHögberg, Andreas