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Behavioural Finance : The psychological impact and overconfidence in financial markets

by Fagerström, Sixten

Abstract (Summary)
PurposeThe main purpose of this paper is to investigate overconfidence and over-optimism in the market. This leads the reader to the question, are the analysts “right” concerning their forecasts? The reader will also get to understand various and sometimes forgotten factors that affect we human beings in our decision making when it comes to investing and analysing which is also known as the behavioural finance theory.ConclusionAccording to the results from my tests it seems that analysts of the S&P500 are exaggerated by the problem of overconfidence and the over-optimistic biases. The analysis part of this study is confirming the discussed theory of anchoring and herding. Analysts tend to “follow the stream”, by evaluate the standard deviations between forecasts and the realized outcome, as well as the indexed analysts’ consensus estimations for twenty-four months of EPS.
Bibliographical Information:

Advisor:

School:Högskolan i Skövde

School Location:Sweden

Source Type:Master's Thesis

Keywords:behavioural finance overconfidence over optimism cognitive psychology irrational markets econophysics

ISBN:

Date of Publication:08/14/2008

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