Behavioral finance: Finance with normal people

“In BAPM, the utilitarian, expressive and emotional benefits are included, and it states that the value of the investment or expected return of the stock depends on risks, social responsibility, liquidity, thrill, prestige, misleading emotions, cognitive errors, and so forth [73].”

“It also implies that the traditional asset pricing models such as the capital asset pricing model (Linter, 1964; Sharpe, 1964) are replaced by behavioural asset pricing models (Statman, 2014).”

“…from rational expectation hypothesis, behavioural finance asserts that investors are ordinary people influenced by sentiment and psychological prejudices, that markets are inefficient, and that differences in expected returns are decided by more than the differences in risk (Statman, 2014).”

“Statman (2014) states that ordinary people behave irrationally and make mistakes due to behavioral effects.”

“Such model is a development of a previous model proposed by Statman (2014) that contains rational and irrational strategies made by investors for their investment decision-making.”

“Statman (2014) provides interesting ideas regarding ‘normal’ people in the field of finance.”

“The term “financial behavior” is defined in terms of cognitive psychology (i.e., how people think; in particular, they put too much weight on recent experience) (Statman, 2014).”

“…can be defined as the degree of adventurousness exhibited by an investor [30], the tendency to focus on the X. Zhang and C.-H. Huang potential positive outcomes of performing a behavior without certain consequences [47], or investor ’ s willingness to take risk when making investment decision [1].”

“In addition, recent research show that the investment decision is not influenced only by the financial and market indicators, but by numerous behavioural factors (Statman, 2014).”

“While Econs make investments with the goal to receive utilitarian benefits (increase in wealth), Humans also focus on expressive and emotional benefits of their financial decisions (statman, 2014).”

“Behavioral finance Recent, more realistic, socially and psychologically based behavioral finance literature (‘behavioral finance’) indicates that in addition to the traditional financial needs also other considerations and needs of investors can play a role (Mitchell and Utkus, 2004; Statman, 2014).”

“Behavioral and emotional finance studies of this issue in general indicate that the investment decisions of individuals are steered by their socio-psychological and demographic characteristics, and should be investigated accordingly (Statman 2014).”

“Statman (2014) ascertained that investors classify stocks as stocks of good (big and growth) and bad (small and value) companies.”

“These irrational behaviors not only challenge the notion of efficient markets but also underscore the need for a deeper understanding of psychological influences in shaping investment decisions (Statman, 2014).”

“We build our analysis on behavioural finance: “finance with normal people in it, people like you and me” (Statman, 2014), which assumes that investors are not pure rational actors, but are influenced by cognitive errors (i.e. hindsight, overconfidence) and mis-leading emotions (i.e. thrill, fear).”

“Downside and upside protection Behavioural investors start the process of constructing behavioural portfolios by dividing their portfolio into mental accounts (Statman, 2014).”

“This is in line with Statman (2005) who claims that all investors, being a normal human being, are boundedly rational.”

“Behavioral finance emphasizes that financial actors can be irrational (Statman, 2014).”

“2012; Rekik et.al 2013; Statman 2014; Prosad et.al 2015 and Kumar and Goyal 2016).”

“Because the lack of evidence in classical finance to support decision making, behavioral finance studies try to fill this gap (Kahneman, 2011; Thaler, 1994; Statman, 2014).”

“However, M. Statman (2014) points out the fact that theoretical rationales for such factors are as important as statistical significance.”

“Emotion can help investors make wiser investment decisions and avoid excessive risks (Shefrin & Statman, 1985; Statman, 2014).”

“According to [17], private investors often cannot separate their roles as investors and consumers.”

“In fact, market participants tend to give excess weight to new information, ignore prospects, and feel over-confident in their capabilities (Statman, 2014).”

“…substitutes behavioral portfolio theory for mean-variance portfolio theory, and behavioral asset pricing model for the capital asset pricing model (CAPM) 95 The Role of Psychological Factors in Behavioral Finance and other models where expected returns are determined only by risk (Statman, 2014).”

“It combines insights from psychology, sociology, and cognitive science to explain why investors often act irrationally, even when they have access to complete information (Statman, 2014).”

“to cognitive errors and misleading emotions [4].”

“According to Statman (2014) and Slovic et al. (2007), behavioral finance emphasizes that investor decisions are shaped not only by fundamentals but also by emotions and cognitive biases.”

“pelajari, peningkatan volume perdagangan yang disebabkan oleh adanya investor yang optimis, pesimistis serta investor dengan reaksi spontan [21].”

“Behavioral Finance Theory gained prominence in the late 1990s, especially in discussions along investor decision making in relation to stock market fluctuations([14]).”

“…theory explained behavioral finance as it assumed that people are normally not rational, individuals plan for their portfolios based on the guidelines of behavioral portfolios, markets are not efficient and the behavioral asset pricing theory describes the expected returns (Statman, 2014).”

“Both accept that markets are hard to beat by ordinary investors”~ (Statman [24]; pp.”

“Behavioral finance concept indicated that investors are both bias and there is a tendency for psychological manipulation (Statman, 2014).”

“Representing investor confidence, sentiment toward stock price movement affects investment decisions, portfolio selection, and market timing (Statman, 2014).”

“However, behavioral finance highlights how cognitive biases and emotional factors significantly influence investment behavior, often resulting in market anomalies and inefficiencies (Statman, 2014).”

“In this schema, the differentials in expected returns are ascribed to factors extending beyond mere variations in risk (Statman, 2014).”

“On the other hand, according to behavioral finance market agents are neither completely rational nor consistent in their choices because their psychology affect their decisions (Miłaszewicz, 2019; Statman, 2014).”

“Several researchers believe that standard financial theory is built around four foundational assumptions or ideas: people act rationally, markets are efficient, people will and do design their portfolios around meanvariance portfolio theory, and expected returns are described by standard asset where expected returns a…”

“Statman (2014: 1) describes four differences between standard finance and behavioral finance: 1.”

“…dapat dijelaskan dengan akal sehat atau irrasional, sehingga perilaku investor ketika mengambil keputusan yang terkait dengan kegiatan investasi, jual-beli sekuritas dan diversifikasi portofolio juga merupakan hal irrasional yang akan terpengaruhi oleh perilaku dan emosi investor (Statman, 2014).”

“According to Statman (2014), individuals in traditional finance are reasonable; those in behavioral finance are normal.”

“Financiers are becoming significantly positive and assured for shares requiring extraordinary market capitalization (Finter, NiessenRuenzi, & Ruenzi, 2012; Statman, 2014).”

“In addition, behavioral finance replaces many aspects of standard finance with new behavioral-based aspects; for example, it replaces the mean-variance portfolio theory in the traditional finance with the behavioral portfolio theory, replaces the term rational people with normal people, and replaces the financial asse…”

“Traditional financial theories challenged the notion of efficient markets and logical individuals by failing to account for these psychological aspects and oddities present in the stock markets (Statman, 2014; De Bondt et al., 2015; Iqbal et al, (2024)).”

“Since people tend to have trouble separating investment decisions from decisions about consumption (Statman, 2014), it is important to include, for example, the often-neglected topic of everyday financial decision-making.”

“Moreover, while adhering to standard finance, behavioral finance extends the financial domain beyond the asset pricing portfolio and market efficiency, (Statman, 2014).”

“As (Statman, 2014) says: “ [Behavioural finance] incorporates parts of standard finance, replaces others, and includes bridges between theory, evidence, and practice.””

“A large body of work suggests that they are deeply linked to emotional reactions and self-regulatory processes under uncertainty and performance pressure (Statman, 2014; Statman, 2019).”

“Their decisions are influenced by various psychological biases, including heuristic bias and herding bias (Statman, 2014).”

“…portofolio Harry Markowitz, Capital Asset Pricing Model (CAPM) dari Share dan Lintner, dan juga derivative opsi Black dan Scholes dan Merton (Statman, 2000) berdasarkan (Statman, 2014) yang cukup bertolak belakang dengan alternatif dasar standar keuangan yang teori behavioural finance tawarkan.”

“One of this criticism emanates from the behavioural finance theory which contends that financial securities are not always priced rationally (Statman, 2014).”

“SAF was created as a direct response to this worldwide trend (Statman, 2014); (Raut et al.”

“In addition, standards finance measures expected returns using asset pricing theory, while behavioral finance uses behavioral assets pricing theory [19].”

“Para Statman (2014), as finanças comportamentais estão em construção e expandem o campo de estudos tradicionais, pois estabelecem vínculos entre teoria, evidência e prática.”

“187 See Oehler (2013b), (2014b), Oehler/Horn/Wendt (2018c), Oehler/Wendt (2016b), Statman (2014).”

“Evidence suggests that app-based investors are more inclined toward short-term trading strategies rather than long-term wealth accumulation, particularly in the early stages of market participation (Statman, 2014).”

“…with behavioral finance theory, which states that the involvement of emotions, traits, preferences, and various things inherent in humans, as intellectual and social creatures, will interact to form the basis of decisions to take action (Barberis & Thaler, 2003; Statman, 2014) Pangestuti, 2022).”