Work detail

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.
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