Behavioral finance: advances in the last decade

Abstract

As recently as three decades ago, human factors were rarely considered in theoretical and empirical research in finance (Miller, 1986). However, this has gradually changed, especially after the internet bubble at the beginning of the twenty-first century. As part of this new understanding of the importance of human factors, a new field of knowledge has gained prominence: Behavioral Finance, which uses ideas derived from psychology, many of which draw upon the seminal work of Daniel Kahneman, winner of the Nobel Prize in 2002. Behavioral Finance is a growing approach that sparks fertile and innovative field research in finance, with potential for development of new management tools, whether in the area of corporate finance or investments. Since the work of Kahneman (2002), the behavioral approach has provided results that are relevant for assessing the quality of executive decisions (Campelo, 2012, p. 881). In the area of asset pricing, in the last decade, for example, researchers have tried to discover and interpret anomalies in stock returns, such as reactions to news and extreme events (Bange & Miller, 2004; Hwang & Salmon, 2004). Thus, in April 2012, the Observatório da Inovação Financeira, a nucleus research of the Escola de Administração de Empresas de São Paulo, Fundação Getulio Vargas (FGV/EAESP), in partnership with researchers working in Brazil, the United States and Europe, and with the support of the Editorial Board of the RAE-Revista de Administração de Empresas, issued a call for papers devoted to modern issues in Behavioral Finance. From the methodological point of view, we understand that Behavioral Finance works on three levels: i) experiments with subjects under controlled laboratory conditions; ii) study of financial decisions in the real world, with applications in personal, family, professional and corporate spheres; and iii) the behavior of financial markets. The papers selected for this special issue of RAE cover topics that address all three levels of studies in Behavioral Finance. We received 25 submissions, four were selected. We thank all authors and reviewers, as well as the Editorial Team of the RAE, especially the editor-in-chief Eduardo Diniz, and Eduarda Pereira (Editorial Assistant) for the attention with which they treated the work and the whole manuscript evaluation and improvement process. We are extremely grateful to Professor Hersh Shefrin (University of Santa Clara), who presented his overview of the contemporary literature on Behavioral Finance. We also thank the authors of the book review and recommendations, which complete this special issue.