Behavioral finance: The psychology of investing

Traditional finance, based on the hypothesis of efficientmarkets and the optimization of statistical figures such asmeans and variances, suggests that investing has a lotto do with mathematics. However, behavioral finance hasput the spotlight back on people. People make mistakes –even in investment decisions, which results in inefficienciesat market level. Based on behavioral finance, investment is80% psychology.In the meantime, behavioral finance has created methodsthat help investors identify their typical mistakes, while findingthe right portfolio for them. The hope is that as manyinvestors as possible will make use of this and the marketswill become as efficient as traditional finance assumes.However, the saying “There's no such thing as a free lunch”will always apply.

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Please download here the full research paper, written in a cooperation from our Co-Fouder Professor Dr. Thorsten Hens and Credit Suisse.