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Franco, Reply Forum 2 Week 2
Advanced Business Research Methods (Liberty
University)
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Discussion Reply: Behavioral Finance Investor Reaction
Maria Franco-Cortes
Liberty University
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Discussion Reply: Behavioral Finance Investor Reaction
Hi Timothy Glazier,
My recommendation is “Institutional Investor Behavioral Biases: Syntheses of Theory
and Evidence” by Ahmad, Ibrahim, and Tuyon (2017), which provide new insights into the
field of behavioral finance. Human irrationality is present in every human being affecting the
decision-making process. Behavioral biases among institutional investors include psychology
forces and sociology forces. Every person has different degrees of behaviors biases bases on
individual traits, cultural traits, and even institutional traits. Therefore, it is important to
understand the causes and effects of investors’ irrational behaviors. By gathering and
synthesizing evidence on behavioral biases of institutional investors, the authors propose an
alternative theory and a conceptual framework in understanding investors’ irrational strategies
and their impact in fund investment performance.
The authors propose the use of the theoretical triangulation which is composed by the
rationality theory, prospect theory, and theory of mind and ABC model. It provides a deep
understanding of the causes and consequences of irrational behavior of a normal human being.
The bounded rationality explains the dual decision-making which includes reasoning and
intuition. The prospect theory offers theoretical explanations for heterogeneity of behavior. The
theory of human mind provides an overview of the origin of irrational behavior. The ABC model
make it easier to understand the causes and effects of irrational behavior. The conceptual
framework address the causes of irrational investment management strategies and their impact on
fund performance (). It also demonstrates that investor decision-making is affected by both
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cognitive heuristics and affective biases. Collectively, the information provided can be used to
understand the investor’s rational behaviors as well as the origins of behavioral biases.
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References
Ahmad, Z., Ibrahim, H., & Tuyon, J. (2017). Institutional investor behavioral biases:
syntheses of theory and evidence. Management Research Review, 40(5), 578–603.
https://doi.org/10.1108/mrr-04-2016-0091
