The book is divided into five parts. The essence of behavioural finance is presented in the first parts. Fuzzy generalizations of some mathematical concepts are presented in the second part. The impact of selected behavioural premises for imprecise estimation of expected return is described in...

About 21 years after establishment of the first Islamic banks in Indonesia, the share of Islamic banks is still small. About 86 percent Indonesian are Muslim, yet the asset share of Indonesian Islamic banks is only about 4 percent. Since Islamic scholars unanimously argue that bank interests are...

Behavioral finance studies the application of psychology to finance, with a focus on individual-level cognitive biases. I describe here the sources of judgment and decision biases, how they affect trading and market prices, the role of arbitrage and flows of wealth between more rational and less...

This paper uses the cross-sectional variance of the betas from the CAPM model to study herd behavior towards market index in Romania. For time-varying beta determination, three different modeling techniques are employed: two bivariate GARCH models (DCC and FIDCC GARCH), two Kalman filter based...

An anchoring adjusted currency option pricing formula is developed in which the risk of the underlying currency is used as a starting point which gets adjusted upwards to arrive at the currency call risk. Anchoring bias implies that such adjustments are insufficient. The new formula converges to...

This paper incorporates expectations-based reference-dependent preferences into the canonical Lucas-tree asset-pricing economy. Expectations-based loss aversion increases the equity premium and decreases the consumption-wealth ratio, because uncertain fluctuations in consumption are perceived to...

The principle of no arbitrage says that identical assets should offer the same returns. However, experimental and anecdotal evidence suggests that people often rely on analogy making while valuing assets. The principle of analogy making says that similar assets should offer the same returns. I...

This study aims to identify the effect of terrorism on size and value premium using value weighted monthly returns for non-financial firms from January 2001 to December 2010. In addition to Independent size and BE/ME sorted portfolios, two dimensional portfolio formation methodology of Dimson,...

Despite ample evidence of ambiguity preferences in individual decision making, experimental studies of ambiguity effects in financial markets are scarce and inconclusive. Although a number of theoretical studies explain empirical puzzles in finance with ambiguity preferences, it is not a given...

This study addresses the question of whether the adaptive market hypothesis provides a better description of the behaviour of emerging stock market like India. We employed linear and nonlinear methods to evaluate the hypothesis empirically. The linear tests show a cyclical pattern in linear...