Cover image for Beyond greed and fear : understanding behavioral finance and the psychology of investing
Beyond greed and fear : understanding behavioral finance and the psychology of investing
Shefrin, Hersh, 1948-
Personal Author:
Publication Information:
Boston, Mass. : Harvard Business School Press, [2000]

Physical Description:
x, 368 pages : illustrations ; 25 cm.
Format :


Call Number
Material Type
Home Location
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HG4515.15 .S53 2000 Adult Non-Fiction Central Closed Stacks

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Even the best Wall Street investors make mistakes. No matter how savvy or experienced, all financial practitioners eventually let bias, overconfidence, and emotion cloud their judgement and misguide their actions. Yet most financial decision-making models fail to factor in these fundamentalsof human nature. In Beyond Greed and Fear, the most authoritative guide to what really influences the decision-making process, Hersh Shefrin uses the latest psychological research to help us understand the human behavior that guides stock selection, financial services, and corporate financialstrategy. Shefrin argues that financial practitioners must acknowledge and understand behavioral finance--the application of psychology to financial behavior--in order to avoid many of the investment pitfalls caused by human error. Through colorful, often humorous real-world examples, Shefrin pointsout the common but costly mistakes that money managers, security analysts, financial planners, investment bankers, and corporate leaders make, so that readers gain valuable insights into their own financial decisions and those of their employees, asset managers, and advisors. According to Shefrin,the financial community ignores the psychology of investing at its own peril. Beyond Greed and Fear illuminates behavioral finance for today's investor. It will help practitioners to recognize--and avoid--bias and errors in their decisions, and to modify and improve their overall investmentstrategies.

Author Notes

Hersh Shefrin holds the Mario L. Belotti Chair in Finance at the Leavey School of Business, Santa Clara University.

Reviews 2

Library Journal Review

Behavioral finance is defined by Shefrin (finance, Santa Clara Univ.) as "a rapidly growing area that deals with the influence of psychology on the behavior of financial practitioners." This comprehensive study is aimed primarily at practitionersÄportfolio managers, analysts, and financial advisersÄwho, according to Shefrin, "need to know that because of human nature, they make particular types of mistakes." Shefrin provides a historical background of finance theory, studies of behavioral analysis, and a review of major contributions to the literature. The book is divided into six parts: behavioral finance, the stock market, individual investors, money managers, corporate executives, and options, futures, and foreign exchange. In addition to numerous case studies, Shefrin utilizes statistical charts and tables to illustrate his central theories and concepts. Important and thought-provoking, this study is recommended for academic faculty and students as well as finance practitioners.ÄLucy T. Heckman, St. John's Univ. Lib., NY (c) Copyright 2010. Library Journals LLC, a wholly owned subsidiary of Media Source, Inc. No redistribution permitted.

Choice Review

In this lucid account of behavioral science applied to investment decision making, Shefrin (Santa Clara Univ.) emphasizes how psychology drives financial decisions, such as the tendency of individual investors and professional portfolio managers to base decisions on biased beliefs ("heuristic-driven bias") and how a problem is worded ("frame dependence"). These decisions produce investment errors and the inaccurate pricing of securities, both of which are important sources and explanations of market inefficiencies. The role of emotion, loss aversion, the inability to accurately perceive risk, the tendency of investors to overreact, overconfidence, and the gambler's fallacy are among the topics Shefrin covers. That correcting the behavioral biases will lead to superior investment decision making is implied but not verified. Shefrin clearly states the themes and contributions of behavioral finance to investment decision making and their implications for efficient markets. Although traditional finance dismisses behavioral finance, this book deserves to be in any library serving investment professionals or academic programs in finance. Numerous stories and case studies, extensive notes, and a good index complete this highly recommended book. Upper-division undergraduate through professional collections. H. Mayo; The College of New Jersey

Table of Contents

Prefacep. ix
Part I What Is Behavioral Finance?p. 1
Chapter 1 Introductionp. 3
Chapter 2 Heuristic-Driven Bias: The First Themep. 13
Chapter 3 Frame Dependence: The Second Themep. 23
Chapter 4 Inefficient Markets: The Third Themep. 33
Part II Predictionp. 43
Chapter 5 Trying to Predict the Marketp. 45
Chapter 6 Sentimental Journey: The Illusion of Validityp. 59
Chapter 7 Picking Stocks to Beat the Marketp. 69
Chapter 8 Biased Reactions to Earnings Announcementsp. 91
Part III Individual Investorsp. 105
Chapter 9 "Get-Evenitis": Riding Losers Too Longp. 107
Chapter 10 Portfolios, Pyramids, Emotions, and Biasesp. 119
Chapter 11 Retirement Saving: Myopia and Self-Controlp. 139
Part IV Institutional Investorsp. 157
Chapter 12 Open-Ended Mutual Funds: Misframing, "Hot Hands," and Obfuscation Gamesp. 159
Chapter 13 Closed-End Funds: What Drives Discounts?p. 175
Chapter 14 Fixed Income Securities: The Full Measure of Behavioral Phenomenap. 193
Chapter 15 The Money Management Industry: Framing Effects, Style "Diversification," and Regretp. 213
Part V The Interface between Corporate Finance and Investmentp. 225
Chapter 16 Corporate Takeovers and the Winner's Cursep. 227
Chapter 17 IPOs: Initial Underpricing, Long-term Underperformance, and "Hot-Issue" Marketsp. 239
Chapter 18 Optimism in Analysts' Earnings Predictions and Stock Recommendationsp. 257
Part VI Options, Futures, and Foreign Exchangep. 271
Chapter 19 Options: How They're Used, How They're Priced, and How They Reflect Sentimentp. 273
Chapter 20 Commodity Futures: Orange Juice and Sentimentp. 289
Chapter 21 Excessive Speculation in Foreign Exchange Marketsp. 299
Final Remarksp. 309
Notesp. 311
Referencesp. 333
Creditsp. 351
Indexp. 359