Behaviour Finance Course of MFin at University of Hong Kong
MFIN7015
Behaviour Finance
Lin, Tao
General Information
Traditional finance theories encounter increasing difficulties in explaining intertemporal and cross sectional securities returns. Half of the course will focus on behavioral finance which introduces cognitive biases, limited information processing, and costly arbitrage to examine the micro dynamics of price discovery and the implications on corporate financing. It offers an introduction to the emerging behavioral finance studies. Topics covered include the efficient market hypothesis (EMH), financial anomalies, non-fundamental risk, limited arbitrage, cognitive biases, non-expected utilities, and behavioral corporate finance. Emphasis is given on how emerging rational behavioral theories can and cannot explain documented evidence.
The other half of the course will focus on hedge funds. Hedge funds and related investments are an integral part of the growing field of alternative investments. We attempt to understand the hedge fund industry, prime brokerage services and some of the recent developments. A considerable part of the course will be devoted to hedge fund strategies, such as convertible arbitrage, merger arbitrage, fixed income trading, and equity long/short strategies, to help us acquire an insight into these strategies and their concomitant risks. Case studies of some hedge funds that suffered large losses are included to illustrate potential pitfalls in the risk management of hedge funds. The role of fund of hedge funds and structured products on hedge funds will be discussed in the context of hedge fund investments.