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Investor Psychology and Behavioral Finance
Traditional finance seeks to understand financial markets assuming that investors are “rational.” Rationality means that investors can access to and have the ability to process information correctly and that competition between investors ensures that securities are correctly priced to reflect all available information. That is, the market is efficient.

However, recent studies suggest that markets are not efficient and that investors are not fully rational. Studies find that investors are committed to certain heuristic-based biases and frame dependent such as overconfidence, optimism, self-attribution, illusion of control, loss aversion, representativeness heuristic, anchoring, availability, ambiguity aversion, hindsight, flaming, etc. Behavioral biases combined with limits to arbitrage and investors’ inattention to information may result in securities not to be correctly priced.

This course will help students understand how individuals’ attitudes and behaviors affect their financial decisions and financial markets. In the practical side, this course will emphasize the role of investors’ psychological biases on various types of market inefficiency and show that how sophisticated investors can take advantage of these behavioral biases. This is a research oriented course with emphasis on both psychology theories and data analysis skills. In the data analysis part, students will learn the skills in:

1) processing mega data from standard data sources (e.g., WRDS database);

2) acquiring and supplying information via online social media websites:	2.1) acquiring information: SEC’s EDGAR (http://www.sec.gov/edgar.shtml), Factiva, LexisNexis, and Wikipedia, etc.	2.2) supplying information: Wikipedia

3) simulating data with RIT simulators to verify bias-driven asset mispricing.

MSE (Management Science & Engineering) Seminar
Full Name: MSE (Management Science & Engineering) Seminar – Social Media and Financial Markets

Emerging information and communication technologies (ICTs) have facilitated an explosive growth of social media. Social media change the ways people acquire, process, exchange, and distribute information. The information systems (IS) area has long argued that the fundamental role of ICTs is to enhance information processing and dissemination in the market, thereby improving market efficiencies. In this seminar course, we will focus on a burgeoning strand of academic studies that examine roles played by social media in information search, supply, and processing by market participants in the financial markets.

This course consists of three modules:

(A) Information search and acquisition over the Internet (e.g., Google, EDGAR, Factiva, LexisNexis, etc.);

(B) Information supply and dissemination via social media (e.g., Twitter, crowd sourcing sites, Wikipedia, etc.);

(C) How individuals process information over social media (e.g., discussion boards, Wikipedia, etc.).

This course has two major objectives of learning: (i) students become familiar with the major topics addressed by the growing literature on social media and financial markets; (ii) students get some firsthand experience of acquiring and supplying information over social media, so as to understand how social media work as information channels in the financial market.

Student deliverables include the following: (a) present papers in the reading list (team work); (b) submit critiques on the assigned papers (individual work); (c) create corporate entries on Wikipedia for assigned companies (team work).

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