Key Points

Foundations of modern finance theory and efficient markets, limits to arbitrage, investor psychology (heuristics and biases), prospect theory, mental accounting, risk perception and preference (risk and loss aversion), and behavioural portfolio theory.

The applications of the topics covered are: the equity premium puzzle, excess volatility, momentum and herding, overreaction and underreaction, investor overconfidence, disposition and house money effects, investor sentiment and emotions in financial decisions.