Skip to main content
SpringerLink
Log in

Behavioral Finance

  • Living reference work entry
  • First Online:
Encyclopedia of Sustainable Management

Synonyms

Behavioural finance; Investor sentiment

Definition/Description

The holy grail of academic finance is to identify those factors that are best able to explain expected returns. The capital asset pricing model (CAPM) proposed by Sharpe (1964) and Lintner (1965) sought to calculate the risk premia inherent to financial assets. Researchers correspondingly study a variety of risk factors to best explain and predict the expected returns, including works by Fama and French (2016, 2018), and Barillas and Shanken (2018) among many others. In addition to company fundamentals and the macroeconomic environment, a new branch of finance has emerged for forecasting expected returns based on investor sentiment as one of the main drivers inducing return co-movements. Optimism or pessimism may drive investor behaviors that condition their interactions with the markets and therefore impacting on stock returns. This investor sentiment can derive from their belief or otherwise in the future...

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution

Institutional subscriptions

References

  • Baker, M., & Wurgler, J. (2006). Investor sentiment and the cross – Section of stock returns. The Journal of Finance, 61(4), 1645–1680.

    Article  Google Scholar 

  • Baker, M., & Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21(2), 129–152.

    Article  Google Scholar 

  • Barillas, F., & Shanken, J. (2018). Comparing asset pricing models. Journal of Finance, 73(2), 715–754. https://doi.org/10.1111/jofi.12607.

    Article  Google Scholar 

  • Benhabib, J., Liu, X., & Wang, P. (2016). Sentiments, financial markets, and macroeconomic fluctuations. Journal of Financial Economics, 120(2), 420–443. https://doi.org/10.1016/j.jfineco.2016.01.008.

    Article  Google Scholar 

  • Chen, R., Yu, J., Jin, C., & Bao, W. (2019). Internet finance investor sentiment and return comovement. Pacific-Basin Finance Journal, 56, 151–161.

    Article  Google Scholar 

  • Fama, E. F. (1960). Efficient market hypothesis. Doctoral dissertation, Ph.D. thesis, Ph.D. dissertation, University of Chicago Graduate School of Business.

    Google Scholar 

  • Fama, E. F., & French, K. R. (2016). Dissecting anomalies with a five-factor model. Review of Financial Studies, 29(1), 69–103.

    Article  Google Scholar 

  • Fama, E. F., & French, K. R. (2018). Choosing factors. Journal of Financial Economics, 128(2), 234–252. https://doi.org/10.1016/j.jfineco.2018.02.012.

    Article  Google Scholar 

  • Kahneman, D., & Tversky, A. (1990). 6. Prospect theory: An analysis of decision under risk. In Rationality in action: Contemporary approaches (p. 140). Cambridge: Cambridge University Press.

    Google Scholar 

  • Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Review of Economics and Statistics, 2, 13–37.

    Article  Google Scholar 

  • Loughran, T., & Mcdonald, B. (2016). Textual analysis in accounting and finance: A survey. Journal of Accounting Research, 54(4), 1187–1230. https://doi.org/10.1111/1475-679X.12123.

    Article  Google Scholar 

  • Piccione, M., & Spiegler, R. (2014). Manipulating market sentiment. Economics Letters, 122(2), 370–373. https://doi.org/10.1016/j.econlet.2013.12.021.

    Article  Google Scholar 

  • Pompian, M. M. (2011). Behavioral finance and wealth management: How to build investment strategies that account for investor biases (Vol. 667). Hoboken: Wiley.

    Google Scholar 

  • Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance, 19(3), 425–442.

    Google Scholar 

  • Zhou, G. (2018). Measuring investor sentiment. Annual Review of Finance Economics, 10, 239–259. https://doi.org/10.1146/annurev-financial-110217-022725.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. School of Management, Polytechnic Institute of Viseu, Viseu, Portugal

    Pedro Manuel Nogueira Reis & António Pedro Soares Pinto

Authors
  1. Pedro Manuel Nogueira Reis
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. António Pedro Soares Pinto
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to António Pedro Soares Pinto .

Editor information

Editors and Affiliations

  1. London Metropolitan University, Guildhall Faculty of Business and Law London Metropolitan University, London, UK

    Samuel Idowu

  2. Cologne Business School, Ingolstadt, Germany

    René Schmidpeter

  3. College of Business, Loyola University New Orleans, New Orleans, LA, USA

    Nicholas Capaldi

  4. International Training Centre of the IL, International Labor Organization, Turin, Italy

    Liangrong Zu

  5. Department of Economics, Society and Politics, University of Urbino Carlo Bo, Urbino, Italy

    Mara Del Baldo

  6. Instituto Politécnico da Guarda, Guarda, Portugal

    Rute Abreu

Section Editor information

  1. School of Law & Justice, University of Canberra, Canberra, Australia

    Benedict Sheehy

Rights and permissions

Reprints and permissions

Copyright information

© 2021 Springer Nature Switzerland AG

About this entry

Check for updates. Verify currency and authenticity via CrossMark

Cite this entry

Reis, P.M.N., Pinto, A.P.S. (2021). Behavioral Finance. In: Idowu, S., Schmidpeter, R., Capaldi, N., Zu, L., Del Baldo, M., Abreu, R. (eds) Encyclopedia of Sustainable Management. Springer, Cham. https://doi.org/10.1007/978-3-030-02006-4_985-1

Download citation

  • DOI: https://doi.org/10.1007/978-3-030-02006-4_985-1

  • Received:

  • Accepted:

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-030-02006-4

  • Online ISBN: 978-3-030-02006-4

  • eBook Packages: Springer Reference Business and ManagementReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences

Publish with us

Policies and ethics

Search

Navigation