Behavioural theories of finance and economics have received little academic attention until recently. Nevertheless, behavioural theories of investor behaviour can be directly applied to categorization of investors and prediction of future behaviour. The purpose of characterizing and predicting future behaviour is to ensure allocation of appropriate corporate resources to meet the needs of clients as effectively as possible. This research specifically focuses on segmentation and predictive modeling of retail clients at Phillips, Hager & North Investment Management Ltd. Segmentation is undertaken through cluster analysis of investors based on transactional and performance data. Subsequent logistic regression and seemingly unrelated regression models are developed to determine if investment personality - through Know-Your-Client (KYC) information - and demographics have an explanatory and predictive relationship with future investor behaviour. / Business, Sauder School of / Graduate

Thesis (MBA (Business Management))--University of Stellenbosch, 2009. / ENGLISH ABSTRACT: The investment management industry is a challenging, exciting and rewarding environment to be employed in. The financial markets and global economies that form the playground for this industry are continually changing and evolving. Firms place a high premium on the intellectual capabilities of their staff and the continued development of those capabilities. However, the perceived soft skills are very often overlooked within the recruitment and development process. The question arises, whether these soft skills have a place within such a highly performance driven environment and does the existence of above average cognitive ability imply the existence of above average emotional ability as measured by emotional intelligence? Adam Smith, who is widely regarded as the father of modern economic theory stated, “If you don’t know who you are, the market is an expensive place to find out”. The rationale of the study is to determine the individual and group emotional intelligence profile for the investment team of an investment manager and the role emotional intelligence plays within their daily operations. The resulting profile will enable the investment management firm to train and develop individual staff members and the group accordingly to improve performance. The result can also be used to build a profile of an ideal candidate that can be used in future recruitment. Data for the case study was collected from an investment management firm where 11 individuals out of the investment team volunteered to take part in the testing. The instrument used was the online BarOn EQ-i. The service of an accredited firm of consulting psychologists was used to conduct the testing. With the help of a trained EQ specialist, the writer compiled and interpreted the results. All results showed an average group composite EQ score below the target score put forward by the writer and EQ specialist and also below the South African standard score, with only a few individuals scoring on or above target for some of the subsections and components of EQ. This study concluded with recommendations to the firm for EQ development on the individual and group level. At an individual level the development should be constructed around the specific needs identified in the EQ results. At an organisational level the recommendations focused on creating organisational acceptance for the development initiative. The study also made proposals regarding future research. / AFRIKAANSE OPSOMMING: Die beleggingsindustrie is ‘n uitdagende, opwindende en lonende omgewing om in te werk. Die finansiële markte en wêreld ekonomieë wat op ‘n deurlopende basis verander vorm die arena waarbinne die industrie moet bestaan. Firmas heg groot waarde aan die intellektuele vaardighede van werknemers en die voortgaande ontwikkeling van daardie vaardighede. Die sogenaamde sagte vaardighede word egter gereeld oor die hoof gesien as nuwe werknemers aangestel word en bestaande werknemers ontwikkel word. Die vraag ontstaan of die sagte vaardighede ‘n bestaansreg het binne so ‘n hoogs kompeterende omgewing en of die bestaan van bogemiddelde intelligensie noodwendig ‘n aanduiding is van bogemiddelde emosionele intelligensie? Die sogenaamde vader van die moderne ekonomiese teorie, Adam Smith, het gesê: “Indien jy nie jouself ken nie, is die markte ‘n duur plek om jouself te vind”. Die beweegrede vir die studie is om die profiel te bepaal vir emosionele intelligensie vir beide die individu en die groep binne die beleggingspan van ‘n batebestuurder en te bepaal wat die rol is wat emosionele intelligensie speel binne die daaglikse aktiwiteite van die firma. Die profiel wat volg uit die resultaat sal die batebestuurder in staat stel om individue en die groep op te lei en ontwikkel om sodoende hul prestasie te verbeter. Die resultaat kan ook gebruik word om ‘n profiel te vorm van ‘n ideale kandidaat wat gebruik kan word in toekomstige werwing. Data vir die gevallestudie is vanaf ‘n batebestuurder verkry nadat 11 individue uit dit beleggingspan aangebied het om deel te neem aan die studie. Die aanlyn BarOn EQ-i is gebruik vir die toetsing. ‘n Geakkrediteerde fima konsulterende sielkundiges is gebruik om die toetse af te neem. Met die hulp van ‘n opgeleide spesialis in die veld van emosionele intelligensie en die BarOn EQ-i, het die skrywer die resultate saamgestel en vertolk. Alle resultate het getoon dat die gemiddelde group saamgestelde EQ telling laer is as die teiken telling wat deur die skrywer en spesialis voorgestel is en ook laer as die Suid-Afrikaanse Standaard telling met slegs enkele individue wat die teiken of hoër as die teiken telling behaal het vir sekere van die onderafdelings en komponente van EQ. Die studie is afgesluit met aanbevelings aan die firma om EQ te ontwikkel op beide die groep en individuele vlak. Aan die individuele kant moet die ontwikkeling bepaal word met inagneming van die spesifieke resultate van die EQ toetsing. Uit die oogpunt van die firma fokus die aanbevelings op inisiatiewe om aanvaarding vir die ontwikkeling in die firma te bewerkstellig. Die studie maak ook voorstelle aangaande verdere navorsing wat onderneem kan word.

Sunk cost accounting refers to the empirical finding that individuals tend to let their decisions be influenced by costs made at an earlier time in such a way that they are more risk seeking than they would be had they not incurred these costs. Such behaviour violates the axioms of economic theory which states individuals should only consider incremental costs and benefits when executing investments. This dissertation is concerned whether the pervasive sunk cost phenomenon extends to corporate acquisitions and financial markets. 122 students from the University of St Andrews participated in three experiments exploring the use of sunk costs in interactive negotiation contexts and financial markets. Experiment I elucidates that subjects value the sunk cost issue higher than other issues in a multi-issue negotiation. Experiment II illustrates that bidders are influenced by the sunk costs of competing bidders in a first price, sealed-bid, common-value auction. In financial markets their exists an analogous concept to sunk cost accounting known as the disposition effect. This explains the tendency of investors to sell “winning” stocks and hold “losing” stocks. Experiment III demonstrates that trading strategies in an experimental equity market are influenced by a pre-trading brokerage cost. Not only are subjects influenced in the direction that reduces the disposition effect but also trading is diminished. Without the brokerage cost there was a significant disposition effect.

Lu Lan. / "June 2004." / Thesis (Ph.D.)--Chinese University of Hong Kong, 2004. / Includes bibliographical references (p. 50-53). / Electronic reproduction. Hong Kong : Chinese University of Hong Kong, [2012] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Electronic reproduction. Ann Arbor, MI : ProQuest Information and Learning Company, [200-] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Electronic reproduction. Ann Arbor, MI : ProQuest Information and Learning Company, [200-] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Mode of access: World Wide Web. / Abstracts in English and Chinese.

This study investigates the existence of the value premium in South Africa’s equity market, and tests extrapolation as a possible explanation for it. The value premium refers to the widely reported superior performance of share price returns of value companies compared to growth companies. The value premium represents an anomaly in mainstream rational finance theory, because it should not persist, unless it could be explained as the result of some composite form of risk. What is highly vexing is the fact that the value premium not only persists in most financial markets over a long period, but that the risk explanation cannot be upheld convincingly. This contributed to the rise of behavioral finance, an approach which introduces psychological factors to provide new explanations for financial phenomena. The behavioral finance explanation for the value premium observation is extrapolation (the tendency to project recent experience too far into the future). This study applies propositions and methods from behavioral finance to investigate the South African equity market. The existence of a value premium in South Africa was investigated by using twenty-nine years’ worth of accounting and share price data. The study employed one- and two-dimensional tests for portfolio formation, and tracked share price returns for up to five years after portfolio formation. The results indicated that a statistically and economically significant value premium existed in South Africa for the period between 1972 and 2001. Extrapolation as a potential explanation for the value premium observation was investigated by applying internationally used methods. Extrapolation was found to provide a robust explanation for the South African value premium.

by Chan Cheuk Tung. / Thesis (M.Phil.)--Chinese University of Hong Kong, 1998. / Includes bibliographical references (leaves 86-90). / Abstract also in Chinese. / ABSTRACT (IN ENGLISH) --- p.ii / ABSTRACT (IN CHINESE) --- p.iv / TABLE OF CONTENTS --- p.vi / LIST OF TABLES --- p.ix / LIST OF FIGURES --- p.x / CHAPTER / Chapter I. --- INTRODUCTION --- p.1 / Overview: Neglected Role of Investors' Emotion --- p.1 / Inadequacies in Existing Theory and Research --- p.3 / Significance of Present Study --- p.5 / Chapter II. --- LITERATURE REVIEW --- p.6 / Demographic Studies of Investors --- p.6 / Decision Research on Choice Behavior --- p.7 / Personality Trait / Cognitive Style Approach --- p.7 / Situationist Approach --- p.8 / Interactionist Approach --- p.9 / Summary --- p.10 / Findings in choice behavior research --- p.10 / "Notion of ""Bounded Rationality""" --- p.10 / Frameworks for task and context effects --- p.12 / Decision-making as a Conflict Resolution Process --- p.13 / Generalized Cost/Benefit Analysis - the Emotional Dimension --- p.14 / Summary --- p.16 / Chapter III. --- HYPOTHESES --- p.18 / Information Acquisition --- p.18 / Negative Information --- p.20 / Positive and Irrelevant Information --- p.23 / Evaluation and Judgment --- p.25 / Strategies Formulation --- p.28 / Trading Performance --- p.30 / Chapter VI. --- METHODS --- p.32 / Overview --- p.32 / Material and Apparatus Selection --- p.33 / Selection of Music --- p.33 / Selection of Currency Pair --- p.35 / System for Trading Simulation --- p.36 / Selection of News Items --- p.37 / Pretest of Treatments --- p.39 / Subjects --- p.40 / Procedure --- p.41 / Manipulation Check - Pretest --- p.42 / Likert scale Measure --- p.43 / Affect Grid Measure --- p.44 / Convergent Validity of Measures --- p.45 / Summary --- p.46 / Estimation of Power and Optimal Sample Size for the Main Experiment --- p.46 / Main Experiment --- p.46 / Subjects --- p.47 / Procedure --- p.47 / Measures of Studied Variables --- p.48 / Control Variables --- p.49 / Chapter V. --- RESULTS & DISCUSSIONS --- p.51 / Manipulation Checks --- p.51 / Reliability of Mood Measures --- p.51 / Effect of Manipulations --- p.52 / Effects of Control variables --- p.54 / Trading Performance --- p.55 / Information Acquisition --- p.59 / Negative Information --- p.59 / Positive and Irrelevant Information --- p.62 / Time Allocation --- p.64 / Summary --- p.66 / Evaluation and Judgment --- p.66 / Decision Time --- p.66 / Decision Complexity --- p.68 / Decision Accuracy --- p.70 / Summary --- p.71 / Strategy Formulation --- p.72 / Use of Cut-loss Order --- p.72 / Use of Limit-profit Order --- p.73 / Investment Size --- p.73 / Summary --- p.75 / Discussion --- p.75 / Chapter VI. --- CONCLUSION --- p.78 / Discussion --- p.78 / Limitations and Suggestions for Future Studies --- p.80 / Suggestions to Investors --- p.76 / Individual Investors --- p.82 / Institutional Investors --- p.84 / BIBLIOGRAPHY --- p.86 / APPENDICES --- p.91 / Appendix 1 News Selection Phase One: Judges' Rating --- p.91 / Appendix 2 Screen Layouts of the Internet Trading System --- p.92 / Appendix 3 Coding Scheme -Complexity of Reasoning --- p.93 / Appendix 4 Questionnaire --- p.94

In this study, we address two research questions: 1) Can we identify bear market episodes in Australia in the past 20 years? 2) How do investors’ moods change as stock market conditions enter into a bear phase. To address the first question, we use a pattern recognition algorithm, called the penalised LSE approach. By defining bear markets as those stock market regimes where the average returns are statistically significantly negative or below the risk free rate, we are able to detect two bear market periods in Australia in the past 20 years. These are the November 1987 to February 1988 and the April 2000 to May 2000 periods. To address the second question, we study the change in investors’ attitudes to varieties of systematic risk and the aggregate number and dollar value of shares traded in portfolios as a result of the regime switch from pre-bear to bear period. Out of the 7 categories of risk considered in this study, the transition from pre-bear to bear regime in both sample periods had a significant impact mainly on investors’ attitude toward the size risk factor. Investors systematically became more sensitive to firm size as stock market conditions entered into the 1987⁄1988 bear market. In the later sample period, investors’ reaction to firm size was more selective as it depended on the characteristics of the stocks that made up their portfolios. We also find that the regime switches resulted in lower portfolio trading volumes. Based on these results we infer that the November 1987-February 1988 bear market evoked a general sad mood, while the April 2000-May 2000 bear market stirred up both angry and sad feelings in market participants depending on the composition of stocks in their portfolios.

The finance industry is an extremely fast and complex world dominated by the Efficient Markets Hypothesis (EMH). This theory contains many assumptions which include that investors are rational utility maximisers and that market prices reflect all relevant economic information available to the public. However, over the years, a new form of financial literature known as behavioural finance has been gaining momentum. Behavioural finance seeks to bridge the gap between psychology and economics in an attempt to gain a better understanding of how markets react to different situations. Behavioural finance has also gained much attention in recent years due to the EMH’s inability to explain many economic anomalies. This study first considers the differences between behavioural finance theory and EMH theory before explaining how an individual’s mood has the ability to influence one’s risk taking preferences. Mood changes were also found to be linked to changes in the way an individual reacts to different situations, the way they thinks and processes thoughts. Negative events were also found to have a greater influence on an individual’s mood than positive events did, resulting in an asymmetric relationship between positive and negative results. This study then examines numerous studies indicating how non-economic events can have a statistical and significant influence on stock market returns before analysing previous literature where sport was found to influence market prices. The aim of this study is to determine if South African national sporting performance can influence investors in such a way that it has the ability to impact on market returns. Using standard event study methodology, this study determines the constant mean return using the daily All-Share price index on the JSE for the period of 1 January 1990 to 31 December 2010. This study focuses on three of South Africa’s most popular sports, namely soccer, cricket and rugby and examine if these three sports have the ability to influence market returns. Although there is some evidence of a relationship between stock returns and sporting performance in the descriptive analysis, the regression results indicate that sporting performance in South Africa does not significantly explain abnormal market returns on the JSE. The study provides a number of possible reasons for this finding and concludes by suggesting areas for future research.

Value and size related equity investment strategies are supported by a large body of empirical research that shows a persistent premium, both longitudinally and crosssectionally. However, the competing rational and behavioural finance explanations for the success of these strategies are a subject of debate. The rational explanation is that the premium earned on value shares or shares of small companies can be attributed to higher risk. Behaviouralists argue that such shares are not riskier and attribute the premium to cognitive errors and biases in human decision making. The purpose of this study is to determine, firstly, whether the value and size premium exist in South Africa during the period July 2006 to June 2012, which includes one of the worst equity market crises in history. Secondly, this study sets out to determine whether the premium earned on value and size strategies are adequately explained by the principles of rational finance theory. To provide evidence regarding the existence of the value premium and size effect, returns are analysed, cross-sectionally, on portfolios of shares sorted by value and size. For evidence of a rational explanation, returns are regressed on value and size variables, and the relative riskiness of value and small companies is analysed. The results show evidence of a value premium in portfolios of small companies, but not big companies. The size effect is found not to be statistically significant. While regressions do show significant relationships between value and size variables and returns, these variables are found not to be associated with higher levels of risk. The conclusion is that the evidence does not support a rational, risk based explanation of the returns