econoMAX - Behavioral Finance

Mark Johnston provides this introduction to behavioural finance. As with behavioural economics, the conventional view of finance assumes that markets are efficient and that the price of shares, bonds and other financial instruments are a reflection of the fundamental economic values that they represent. Behavioural finance is all about understanding why and how financial markets are inefficient. If there is a difference between the market price of a share or bond and its fundamental value then in conventional economics no one can make money in financial markets by exploiting the difference.

This article was recently published in econoMAX, tutor2u’s digital magazine for A Level Economics. Schools and Collegessubscribing to econoMAXare able to access the entire archive of hundreds of similar articles and can download, save, print and share hi-res PDFs of each resource.