This document discusses various types of investors and behavioral finance theories. It describes savers, speculators, bull investors, bear investors, and specialists. It then explains prospect theory, regret theory, anchoring, and over-and-under reaction. Prospect theory shows how people assess risk differently based on potential gains or losses. Regret theory discusses avoiding regret when investments decline. Anchoring refers to relying on recent prices. Over-and-under reaction means overestimating success and underestimating risks. The document provides examples for each theory.

1. BEHAVIOURAL FINANCE

2. Group Members

4. Bear Investor

5. Savers

6. Speculators

8. Types of Investors….contd Bull Investor: An investor who expects prices to rise and so buys now for resale later. It is a prolonged period where the investment prices rise faster than their historical average. Bear Investor: An investor who expects prices to fall and so sells now in order to buy later at a lower price. The chances of losses are greater here as prices are continuously falling and the end is not in sight

9. Types of Investors….contd Specialists: Specialists believes that the key to successful investing isn’t luck but it’s education and experience. The Specialist generally picks a single investing area, and becomes an expert in that area. Some Specialists deal in paper assets, some deal in real estate, and some start businesses

10. TheoriesofBF PROSPECT THEORY REGRET THEORY ANCHORING OVER-AND-UNDER REACTION

12. Tversky and Kanheman (1979) developed the theory showing how people manage risk.

13. Explaining the apparent regularity in human behaviors when assessing risk under uncertainty.

14. People respond differently to equivalent situations depending on whether it is presented in the context of a loss or a gain.

16. SITUATION-2 (ii):a) A sure loss of Rs.7,500b) 75% chance to loss Rs.10,000 and 25% chance to lose nothing

17. A large majority of people Choose A in situation 2(i) and b in situation 2(ii).

20. Anchoring is a phenomenon in which in the absence of better information, investors assume current prices are about right.

21. Anchoring describes how individuals tend to focus on recent behavior and give less weight to longer time trends.

22. People tend to give too much weight to recent experience, extrapolating recent trends that are often at odds with long run average and probabilities

24. One of the company's major customers, who contributed to 50% of XYZ's revenue.

25. Decides not to renew its purchasing agreement with XYZ causes a drop in XYZ's share price from $80 to $40.

26. By anchoring to the previous high of $80 and the current price of $40, the investor erroneously believes that XYZ is undervalued.

27. Keep in mind that XYZ is not being sold at a discount, instead the drop in share value is attributed to a change to XYZ's fundamentals.

29. People tend to exaggerate their talents and underestimate the likelihood of bad outcomes over which they have no control.

30. The greater confidence a person has in himself, the more risk there is of overconfidence.

31. Managers overestimate the probability of success in particular when they think of themselves as experts

33. Speculative Bubble Bubble Formation Bubble breaks Price inflation SELL BUY Price deflation Price Rise Depression

34. Speculative Bubble - Factors

35. Structural Factors New technology Cultural Changes Baby Boom Optimistic Analysts MFs & Pensions Inflation play Volume of Trade Rise in Gambling opportunities

36. Cultural Factors

37. Psychological Factors