Day-4: ‘Trends in Behavioural Finance’- Prof. Madhu Veeraraghavan, Area Chair of Finance, T.A. Pai Management Institute

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In today’s morning session at the Winter School, Prof. Madhu Veeraraghavan took us on an informative and interesting journey through the field of behavioral finance, covering its history, the rationale for its emergence as a counter to Fama’s efficient market hypothesis, and the various effects and biases observed in empirical finance that it seeks to explain. Prof. Madhu skilfully navigated through competing theories and schools of thought regarding efficient markets, rational expectations, bounded rationality, arbitrage and its limits, heuristics and biases, real-world limits on capital and other constraints which lead to deviations from the assumptions behind and predictions of efficient markets. Besides the academic take-aways from his talk, there were two other take-aways which I believe might be of interest to a wider audience. First, how can we apply the insights of behavioral finance to our own investing behavior? Second, what can we learn from the process through which behavioral finance established itself as a counter to the efficient market hypothesis?

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