Behavioral finance explaining excessive volatility of returns on financial instruments
| Author: | Bc. Šárka Křížková |
|---|---|
| Year: | 2016 - summer |
| Leaders: | PhDr. Jiří Kameníček CSc. |
| Consultants: | |
| Work type: | Bachelors |
| Language: | English |
| Pages: | 68 |
| Awards and prizes: | |
| Link: | https://is.cuni.cz/webapps/zzp/detail/151321/ |
| Abstract: | The main focus of this thesis is to comprehensively describe the area of research called Behavioral finance and to point out a theory which has existed over 30 years but it is still not further developed: the Prospect theory. It has an application in many areas including finance - the major of this work. The thesis analyses the volatility of returns on futures contracts on cotton, crude oil and S&P 500 index using ARCH type models. The analysis confirms an asymmetric leverage effect of returns on volatility of all of the three contracts which corroborates a loss aversion in the decision making of investors, one of the main features of Prospect theory. On the other hand a measure of investor sentiment defined using open interest information incorporated in the model to directly capture investors reactions proved to be a weak tool. |
