This book sheds light on financial decision making and lays down the major biases in human behavioral decision making, such as over-confidence, naive extrapolation, attention, and risk aversion, and how they lead investors and corporations to make considerable mistakes in investment.
It draws on a large body of literature, from psychology and social psychology to, most importantly, behavioral economics and behavioral finance. It also looks at the progress in behavioral finance research over recent decades and includes research outputs based on retail and institutional investors from the United States, China, and many other international financial markets.
The book focuses on China’s financial reforms and economic transition and includes many cases from that country to highlight the importance of behavioral finance and investor education. It therefore provides much needed in-depth understanding of the Chinese capital market.
Table of Contents
1 Disappointing performance
2 Unsettled investors
3 Under-diversified portfolios
4 Mistimed timing and misguided stock picking
5 Disappointing mutual fund performance
6 Irrational mind
7 Behavioral biases and investment decision making
8 Difficult history
9 Learning by investing
10 Over-confident CEOs
11 Catering CEOs
12 Risk management! Risk management!
13 Regulation and government decision making: the behavioral biases of governments and regulators
14 How to reform
Ning Zhu is a Deputy Director at the National Institute of Financial Research and FanHai Professor of Finance at the PBC School of Finance, Tsinghua University, Professor of Finance at the Shanghai Advanced Institute of Finance, Faculty Fellow at the Yale University International Center for Finance, and Special Term Professor of Finance at the University of California, Davis, and at Guanghua School of Management at Beijing University. Prior to returning to Asia, he was a tenured Professor of Finance at the University of California. Professor Zhu is an expert on behavioral finance, investments, corporate finance, and the Asian financial markets. He has published numerous articles in leading journals in the finance, economics, management, and legal fields. In addition to his academic research, Professor Zhu helps asset management companies in a wide range of capacities.
'Professor Ning Zhu’s new book is a must read for those who want to understand the behaviors behind Chinese investment and its decision making. Continued development and understanding of these factors behind investments is essential for all readers whether the causal investor or the investment professional. I find this book well-written, make interesting points and highly relevant.' —David Yu, CFA, Adjunct Professor of Finance, New York University Shanghai and Managing Director & Chief Investment Officer, Inception Aviation
'Professor Zhu provides a compelling and easy to read analysis on the dangers of investing that many other investment books fail to appreciate. His numerous historical examples and other research provides a useful perspective and antidote to common fallacies in investor thinking. The timeliness of the topic makes it a must read for Chinese investors in particular who are now engaged in financial market activities more than any time in its history. This book is definitely a worthwhile addition to any syllabus covering investment topics.' —Ann Lee, Adjunct Professor of Economics and Finance, New York University
'One of the things that sets this book apart is that it takes many different perspectives. While much has been written about the failures of individual decision-making, the implications of behavioral finance extend to the corporate sector and to the regulatory and government sectors as well. Professor Zhu shows us how decision-making in all of these arenas is actually influenced by a common set of psychological tendencies that, in turn, tie back into fundamental human nature. The book demonstrates not only why behavioral finance is important, but it also shows how our personal analytical limitations can be overcome, once we recognize them.' — William N. Goetzmann, Edwin J. Beinecke Professor of Finance and Management Studies; Director of the International Center of Finance, Yale School of Management, Yale University