Conceptual Framework of Behavioural Finance: Decoding the Nuances of Irrational Investment Behaviour

ABSTRACT

This paper is based on an integrated review of literature on Behavioural Finance. It provides an overview of the nuances of traditional (or rational) and behavioural (or irrational) investment patterns. Further, dimensions of Behavioural Finance such as limits of the arbitrage i.e. fundamental risk, noise trader risk, implementation costs and investor psychology i.e. framing effects, prospect theory, loss aversion theory, disposition effect, biases (excessive optimism, overconfidence, confirmation bias, belief perseverance), Heuristics (representativeness, sample size neglect, anchoring, availability and affect) have been examined painstakingly so as to build a holistic perspective on the conceptual framework of Behavioural Finance. Current researches on the subject are quite fragmented and sporadic.

FULL TEXT