Talk on ‘Teaching Behavioral Finance through Financial Market Simulations’

Prof. Joshy Jacob, Associate Professor, Finance & Accounting area, IIM Ahmedabad, led a discussion on the behavioural biases affecting investments in markets, hosted by the Centre for Capital Markets and Risk Management.

Prof. Jacob is actively associated with research on market microstructure, corporate finance and other related contemporary topics like corporate governance as well as bankruptcy and credit risk. He is a well-rated tenured faculty; he teaches behavioral finance to the students of management.

During the session, it was discussed that behavioural biases cause the market to sway from fundamental values. Price discovery instruments like equity valuation, credit spread and quantities of financial assets exposed to boom and bust cycles develop due to irrationality of traders in financial markets. Likelihood of occurrence of an event, distorted beliefs about future outcomes associated with reasoning, switching risk preferences, herd mentality, recency bias, all cloud up to an investor’s choice making ability. With an increase in incoming cash flow, the investor’s risk-taking ability increases.