Behavioral Finance

Behavioral Finance at JP Morgan ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Agenda ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Slide 1 © Hussein Elgarhy and Fouad Ellaithy, MsM-RITI-Cairo Outreach Program, 2010.

Why Behavioral Finance? ,[object Object],[object Object],[object Object],[object Object],© Hussein Elgarhy and Fouad Ellaithy, MsM-RITI-Cairo Outreach Program, 2010.

Behavioral Finance ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],© Hussein Elgarhy and Fouad Ellaithy, MsM-RITI-Cairo Outreach Program, 2010.

Our Brains affect on Financial Decisions © Hussein Elgarhy and Fouad Ellaithy, MsM-RITI-Cairo Outreach Program, 2010. ,[object Object],[object Object]

Behavioral Finance Cont’ ,[object Object],[object Object],Stocks Market Price Stocks Dividends 1880 1900 1920 2000

Behavioral Characteristics ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],© Hussein Elgarhy and Fouad Ellaithy, MsM-RITI-Cairo Outreach Program, 2010. ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Behavioral Characteristics “ JP Morgan focus “ ,[object Object],© Hussein Elgarhy and Fouad Ellaithy, MsM-RITI-Cairo Outreach Program, 2010. ,[object Object]

Over Confidence ,[object Object],[object Object],[object Object]

Over Confidence ,[object Object],[object Object]

Over Confidence ,[object Object],[object Object],[object Object],[object Object]

Over Confidence ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Prospect Theory In year 1979 Daniel Kahneman & Amos Tversky published there article about Prospect Theory as a psychologically realistic alternative to Expected Utility Theory. There is a discontinuity in slope which means we value losses more than we value gains given an equal probability for both. In contrary to EUF, here we are always at the reference point exaggerate in our minds the importance of deviations from where we are. This is not rational! So losses tend to dominate so you don’t want to take the bet. Expected Utility Function Value Function

The Weighting Function ,[object Object],[object Object],[object Object],Probability Gain 25% $3000 20% $4000

The Weighting Function Cont’ ,[object Object],[object Object],[object Object],[object Object],Probability Gain 25% $3000 20% $4000

[object Object],[object Object],The Weighting Function Cont’ Probability Gain 100% $3000 80% $4000

[object Object],[object Object],[object Object],The Weighting Function Cont’ Probability Gain 100% $3000 80% $4000

The Weighting Function Cont’ ,[object Object]

JP Morgan ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Behavioral Finance at JP Morgan ,[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Behavioral Finance Implementation

JPM Branded BF Fund ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Top JPM BF Funds Updated Status

Loss Aversion: Pop Quiz ,[object Object],[object Object],[object Object],© Hussein Elgarhy and Fouad Ellaithy, MsM-RITI-Cairo Outreach Program, 2010.

Loss Aversion: The Disproportion of Gain & Loss ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],© Hussein Elgarhy and Fouad Ellaithy, MsM-RITI-Cairo Outreach Program, 2010. ,[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],© Hussein Elgarhy and Fouad Ellaithy, MsM-RITI-Cairo Outreach Program, 2010. Behavioral Finance: Key points

[object Object],[object Object],[object Object],© Hussein Elgarhy and Fouad Ellaithy, MsM-RITI-Cairo Outreach Program, 2010. Conclusion

Behavioral Finance

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