Behavioral Finance
💡 These notes will purely be based on BEHAVIORAL (Something not
related to financial/macro-economic/socio-economic factors/firm
statements).
Its all hypothetical/trustworthy/fear related.
→
Behavioral finance is a fascinating field that explores how
psychological factors influence financial decision-making.
Noise Variable in Finance
Behavioral Finance 1
, It is an extension of behavioral economic concepts that doesn’t take into
account the Firm statements, socio and macro economic factors, fundamental
factors, etc.
Types of Variables:
Direct Variable : Direct noise variables in behavioral finance refer to
individual psychological biases and emotional factors that directly
influence decision-making, such as overconfidence and fear of missing
out (FOMO).
Ex: Consumer Confidence Index, AAII, Michigan Sentiment Index, etc.
Indirect Variable : Indirect noise variables encompass broader market
dynamics, social influences, and information environments that indirectly
affect decision-making, such as market volatility and cultural norms.
Ex: Indices consisting of market variable as its components, MDA
(Management & Discussion analysis) in report, Speeches by CEO’s, their
speaking ones, readability, etc.
More Examples: Opening day IPO return, No of IPO, Dividend premium,
etc.
💡 Example: Bunch of IPO’s usually happen at a same duration because the
market is bullish at that time and every one thinks that it will go up.
Firm mostly goes to IPO because money obtained from the public is too
high [Even as compared to the worst VC]. Also, the debt from VC is risky
as compared to Public shares.
Both these set of variables were being used for trading independently as well
as controls with the existing fundamentals.
Behavioral Finance 2
💡 These notes will purely be based on BEHAVIORAL (Something not
related to financial/macro-economic/socio-economic factors/firm
statements).
Its all hypothetical/trustworthy/fear related.
→
Behavioral finance is a fascinating field that explores how
psychological factors influence financial decision-making.
Noise Variable in Finance
Behavioral Finance 1
, It is an extension of behavioral economic concepts that doesn’t take into
account the Firm statements, socio and macro economic factors, fundamental
factors, etc.
Types of Variables:
Direct Variable : Direct noise variables in behavioral finance refer to
individual psychological biases and emotional factors that directly
influence decision-making, such as overconfidence and fear of missing
out (FOMO).
Ex: Consumer Confidence Index, AAII, Michigan Sentiment Index, etc.
Indirect Variable : Indirect noise variables encompass broader market
dynamics, social influences, and information environments that indirectly
affect decision-making, such as market volatility and cultural norms.
Ex: Indices consisting of market variable as its components, MDA
(Management & Discussion analysis) in report, Speeches by CEO’s, their
speaking ones, readability, etc.
More Examples: Opening day IPO return, No of IPO, Dividend premium,
etc.
💡 Example: Bunch of IPO’s usually happen at a same duration because the
market is bullish at that time and every one thinks that it will go up.
Firm mostly goes to IPO because money obtained from the public is too
high [Even as compared to the worst VC]. Also, the debt from VC is risky
as compared to Public shares.
Both these set of variables were being used for trading independently as well
as controls with the existing fundamentals.
Behavioral Finance 2
