About this course: Investors tend to be their own worst enemies. In this third course, you will learn how to capitalize on understanding behavioral biases and irrational behavior in financial markets. You will start by learning about the various behavioral biases – mistakes that investors make and understand their reasons. You will learn how to recognize your own mistakes as well as others’ and understand how these mistakes can affect investment decisions and financial markets. You will also explore how different preferences and investment horizons impact the optimal asset allocation choice. After this course, you will be more effective in overcoming biases to do the wrong things at the wrong times and tailoring an investment strategy that is best suited on your or your client’s profile and investment needs.
Created by: Rice University
Taught by: Arzu Ozoguz, Finance Faculty
Jones Graduate School of Business
| Basic Info | Course 3 of 5 in the Investment and Portfolio Management Specialization |
| Commitment | 4 weeks of study |
| Language | English |
| How To Pass | Pass all graded assignments to complete the course. |
| User Ratings |
Syllabus
WEEK 1
Efficient markets hypothesis and limits of arbitrage
This module introduces the third course in the Investment and Portfolio Management Specialization. In this module, we first present the efficient market hypothesis (EMH) – another pillar idea of modern finance. You will learn about its rationale as well as the empirical evidence that supports and challenges the predictions of the EMH such as anomalies. Finally, we will consider why smart money may sometimes fail to exploit away anomalies in financial markets.
9 videos, 12 readings, 2 practice quizzes
- Video: Introduction and welcome to class
- Reading: Grading Policy
- Reading: How to use discussion forums
- Reading: Meet & Greet: Get to know your classmates
- Reading: Pre-Course Survey
- Video: Efficient Markets Hypothesis (EMH)
- Video: Examples of market efficiency: Market efficiency in real time
- Video: Three Versions of Efficient Market Hypothesis
- Reading: Watch market efficiency in real time
- Reading: Real Time Market Efficiency
- Reading: Lecture Handouts: Efficient Markets Hypothesis (EMH)
- Practice Quiz: Efficient markets hypothesis
- Video: Event studies
- Video: Anomalies
- Video: Mutual fund and analyst performance
- Reading: Lecture Handouts: Are markets efficient?
- Reading: EntreMed Case
- Practice Quiz: Are markets efficient?
- Video: Smart investor should make markets efficient, right?
- Reading: New Facts in Finance (optional)
- Reading: Lecture Handouts: Limits to arbitrage
- Video: Efficient Market Hypothesis
- Reading: Module 1: Quiz solutions
- Discussion Prompt: Forum question on market efficiency and passive strategy
Graded: Anomalies
Graded: Efficient markets and limits of arbitrage
WEEK 2
Biases and realistic preferences
In this module, we review the behavioral critique of market rationality. In contrast to the presumption that investors are rational, behavioral finance starts with the assumption that they are not. We will examine some of the information-processing and behavioral biases uncovered by psychologists in several contexts. In addition, we will consider alternative, more realistic ways of describing investor preferences.
12 videos, 10 readings, 1 practice quiz
- Video: Introduction
- Video: What are heuristics-driven biases?
- Video: Representativeness
- Video: Conservatism and anchoring
- Video: Overconfidence
- Reading: Lecture handouts: Heuristics-driven biases
- Reading: Additional heuristic-driven biases (required)
- Reading: Heuristics and Biases in Retirement Savings Behavior (optional)
- Video: Frame dependence
- Video: Mental accounting
- Reading: Behaving Badly (optional)
- Reading: Seven Sins of Fund Management (optional)
- Reading: Lecture handouts: Frame dependence
- Practice Quiz: Heuristic driven biases and frame dependence
- Video: Realistic preferences
- Video: Loss aversion or Prospect theory
- Video: Habit utility
- Video: Catching up with the Joneses
- Reading: Lecture Handouts: Preferences
- Reading: The Psychology and Neuroscience of Financial Decision Making
- Reading: Psychology of what we do with our money (optional)
- Video: Biases and realistic preferences
- Reading: Module 2: Quiz solutions
Graded: Biases and realistic preferences
WEEK 3
Inefficient markets
In this module, we review a number of puzzles related to the aggregate stock market and the cross-section of average stock returns that have been documented in the literature. We examine how the behavioral biases and tendencies discussed in the previous module might result in some of these puzzles observed in financial markets.
9 videos, 2 readings, 2 practice quizzes
- Video: Introduction
- Video: Equity premium puzzle
- Video: Volatility puzzle
- Video: Closed-end fund puzzle
- Video: Examples from Closed-End Country Funds
- Reading: Lecture handouts: Applications – the Aggregate Stock Market
- Practice Quiz: Applications – the Aggregate Stock Market
- Video: Long-run reversals
- Video: Value effect
- Video: Momentum
- Reading: Lecture handouts: Applications – The cross-section of average stock returns
- Practice Quiz: Applications – The cross-section of average stock returns
- Video: Summary
Graded: Inefficient markets and behavioral biases
Graded: Identifying trends in share prices
WEEK 4
Applications: Investor behavior
In this last brief module, we turn our attention to the behavior of individual investors and review the empirical evidence on how behavioral biases and tendencies we discussed in the previous modules affect individual investor portfolio choice and trading decisions.
6 videos, 3 readings, 1 practice quiz
- Video: Introduction
- Video: Failure to Diversify
- Video: Naïve diversification
- Video: Excessive trading
- Video: Individual investors’ buying and selling decision
- Reading: Lecture handouts: Investor behavior
- Practice Quiz: Investor Behavior
- Video: Summary
- Reading: Module 4: Quiz solutions
- Reading: End-of-Course Survey
Graded: Applications: Investor behavior
FAQs
How It Works
Coursework
Each course is like an interactive textbook, featuring pre-recorded videos, quizzes and projects.
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Creators
Rice University
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Pricing
| Audit | Purchase Course | |
|---|---|---|
| Access to course materials | Available | Available |
| Access to graded materials | Not available | Available |
| Receive a final grade | Not available | Available |
| Earn a shareable Course Certificate | Not available | Available |
Ratings and Reviews
Great course!
Extremely interesting but could be more detailed showing more specific data and examples with downloadable spreadsheets.
I've learnt a lot with this course. Sometimes we don't stop to think about how to think on making decision.
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A bit too easy in comparison to the previous module. The Efficient Market Hypothesis is perfectly explained as well as many other things. I think more practical manipulations with data would have been useful.