Review of behavioral finance: effects on investor decisión making and market anomalies

Abstract

The following work focuses on identifying the inefficiencies of markets and investors and how behavioural finance explains these behaviours. Therefore, the first section describes the bases of the financial market hypothesis, as Fama and French (quoted in Prosad, Kapoor and Sengupta, 2015) argue, in these markets it is operated under the condition that the prices of the securities show all the available and relevant information. The second chapter analyses behavioural finance, starting with Tversky and Kahneman's (1974) prospective theory, then the most important biases are classified depending on whether they are cognitive or emotional, and ends with another classification according to the risk tolerance level of each bias.