To date, scholars working in the area of behavioral finance have mostly focused on asset pricing and portfolio theory, but less so in corporate finance. In this paper, I propose a conceptual framework for applying behavioral ideas to the main topics which comprise corporate finance, and call the...

Managers and corporate directors need to recognize two key behavioral impediments that obstruct the process of value maximization, one internal to the firm and the other external. I call the first obstruction behavioral costs. Behavioral costs, like agency costs, tend to prevent value creation....

We estimate how an acquiring firm’s risk changes depending on whether the market initially judges the acquisition to be neutral, strongly negative, or strongly positive for the shareholders of the acquiring firm. We find that for an average neutral acquisition, the annualized standard...

Existing studies on individual investors' decision-making often rely on observable socio-demographic variables to proxy for underlying psychological processes that drive investment choices. Doing so implicitly ignores the latent heterogeneity amongst investors in terms of their preferences and...

Many people believe the yield enhancement produced by covered options writing is the trading world's version of a free lunch. ...The writer of the call option agrees to sell a portion of the future upside appreciation of a long stock position; in exchange, the writer gains a one-time cash...

We develop a positive behavioral portfolio theory (BPT) and explore its implications for portfolio constrution and security design. The optimal portfolios of BPT investors resemble combinations of bonds and lotterly tickets consistent with Friedman and Savage's (1948) observation. We compare the...

The Cox, Ross, and Rubinstein binomial model is generalized to the multinomial case. Limits are investigated and shown to yield the Black-Scholes formula in the case of continuous sample paths for a wide variety of complete market structures. In the discontinuous case a Merton-type formula is...