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Hello, sir, i have a question relating to the 2008 financial crisis which was supposed as a result of Behavioral Financing, now I was having discussion with my teacher regarding this, could explain little bit that
1. was it due to Behavioral Financing
2.after 2008 there was a study conducted of stocks which were using Behavioral Financing approach but their returns were very low which was surprising because 2008 was the ideal time to test out the theory of Behavioral Financing, Is there any point or argument u can raise which you can suggest giving Behavioral Financing the benefit of doubt and that it actually did not fail.Thanks, ALOT SIR!
1. In one sense it could be argued that everything that happens in the financial world is due to behavioural aspects. Analysts rely on traditional theories such as CAPM, but investors have their own biases, expectations etc.. The financial crisis was primarily caused by the fact that the sub-prime loans failed to an extent that was not expected and so it could be argued that this was behavioural – the buyers had been motivated by the fact that they did not expect this to happen.
2. There have been many papers written, both before and after 2008, on behavioural aspects. However, there are so many aspects – greed, fear, bias etc.- that is really just not possible (at present) to ‘prove’ anything.
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