5 psifinance behavioral finance course mitroi 2015

8/9/2019 5 PsiFinance Behavioral Finance Course Mitroi 2015

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Master Programs, ASE, 2014-2015

Behavioral Finance

A Psi Finance Perspective on Investment Management

Dr. Adrian T. Mitroi, CFA


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Course 5New Financial Economics:

Uber-competition and digital

finance

2ASE, Facult of Finance, Master Pro rams, Course and Seminars onA lied Behavioral Finance, ASE, 2014 PsiFinance and Investment Finance Adrian Mitroi CFA PhD


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Investors Want Games, Competition.

We want to play and win. We want fun

Benefits to active investors

Utilitarian benefitsIt provides high returns

Expressive benefitsI am much smarter thanmediocre index fundinvestors

Emotional benefitsI love the exhilaration ofwinning

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Fundamental forces have transformed

the financial services market today

1. Deregulation/re-regulation, Financial Innovation

2. Securitization (The next step in the mortgage

lending process, as we have seen, is that the

mortgage originators sell their individual

mortgages to a mortgage securitizer so that they

can be bundled into a form that will allow them to

be placed in investor portfolios.3. Globalization and Advances in Technology.

represent responses to deregulation and

re-regulation.



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The fundamental forces of change

increaseduber-competition

Competition for deposits

Competition for loans

Competition for payment services Competition for other financial services

Discussion: What do you think is the result of this increased competition?

What do you think is the result of current crisis for banking system?



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Investment vs. commercial banking

Commercial banks consider investment bankingattractive because most investment banks:

already offer many banking services to prime

commercial customers and high net worth

individuals and sell a wide range of products not available through

banks

can compete in any geographic market without the

heavy regulation, earn extraordinarily high fees forcertain types of transactions and can put their own

capital at risk in selected investments.



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Securitizationsolution and problem

Securitization is the process of convertingassets into marketable securities.

It enables banks to move assets off-balance

sheet and increase fee income.

It increases competition for standardized

products such as:

mortgages and other credit-scored loans

Eventually lowers the prices paid by consumersby increasing the supply and liquidity of these

products.



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Globalization.

Asia emancipation. Europe stagnation

Gradual evolution of markets and institutions so

that geographic boundaries do not restrict financial

transactions.

Financial markets and institutions are becoming

increasingly global in scope.

Firms must recognize that businesses in other

countries as well as their own are competitors, and

that international events affect local operations.



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Introduction of the 3 Case Studiesgroup of 3 students (w/ clear attribution)

delivered on exam day, English.

Case Study # 1

Case Study # 2

Case Study # 3



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Further references Robert J. Shiller, Finance and the Good Society, 2012 by Princeton University Press

Daniel Kahneman, Mark W. Riepe, Aspects of Investor Psychology Beliefs, preferences, and

biases investment advisors should know about.

Tversky, Amos, and Daniel Kahneman. Advances in Prospect Theory: Cumulative

Representation of Uncertainty. Journal of Risk and Uncertainty,

M. Statman, What Investors Really Want, Presentation delivered at CFA Romania and

ASE Bucharest Conference. M. Statman, What Investors Really Want, McGraw-Hill, 2011

S. Das, H. Markowitz, J. Scheid, and M. Statman, Portfolio optimization with mental

accounts, Journal of Financial and Quantitative Analysis, 2010

S. Das, H. Markowitz, J. Scheid, and M. Statman, Portfolios for investors who want to reach

their goals while staying on the mean-variance efficient frontier, Journal of Wealth

management, 2011

M. Statman, Efficient markets in crisis, Journal of Investment Management, 2011

M. Statman, What is Behavioral Finance, in Behavioral Finance and Investment

Management, edited by Arnold Wood, Research Foundation, CFA Institute 2010

M. Statman, Mandatory retirement savings, Financial Analysts Journal, 2013

Michael Pompian, Behavioral Finance and Wealth Management, How to Build OptimalPortfolios That Account for Investor Biases

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5 psifinance behavioral finance course mitroi 2015

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