Biases and Portfolio Selection

Go to Course: https://www.coursera.org/learn/biases-portfolio-selection

Introduction

### Course Review: Biases and Portfolio Selection on Coursera #### Overview Investing can be a daunting task, and often, the greatest obstacles we face are the biases and irrational behaviors that influence our decision-making. The Coursera course, **Biases and Portfolio Selection**, part of the Investment and Portfolio Management Specialization, addresses this pressing issue head-on. This course is designed for those who wish to deepen their understanding of behavioral finance and learn how to leverage this knowledge to improve investment outcomes. #### Course Structure The course is meticulously structured into four main modules, each focusing on different aspects of behavioral finance and portfolio selection: 1. **Efficient Markets Hypothesis and Limits of Arbitrage** - This module introduces the fundamental principle of efficient market hypothesis (EMH). Participants will delve into its rationale and the empirical evidence that both supports and critiques its predictions. Insights into why even experienced investors sometimes cannot exploit market anomalies will also be explored, setting the stage for understanding the inherent challenges within financial markets. 2. **Biases and Realistic Preferences** - This module shifts focus to the behavioral critique of market rationality. It challenges the traditional notion that all investors are rational beings, instead proposing that they often act irrationally. Through examination of various informational and behavioral biases identified by psychologists, learners will be equipped with the tools to recognize these biases in themselves and others, paving the way for more realistic investor preferences. 3. **Inefficient Markets** - Here, participants will explore market puzzles related to the aggregate stock market and average stock returns. The module investigates how the biases discussed earlier contribute to these market anomalies, providing a deeper understanding of why financial markets sometimes behave unpredictably. 4. **Applications: Investor Behavior** - The final module focuses on individual investor behavior. By synthesizing the knowledge gained throughout the course, participants will analyze how behavioral tendencies affect personal portfolio choices and trading decisions, rounding out the course's practical application. #### Learning Outcomes By engaging with the course, learners can expect to: - Grasp the core concepts of behavioral finance and its implications on market behavior. - Identify and understand various biases that can impair rational decision-making. - Analyze real-world market anomalies and the behavioral biases contributing to them. - Apply insights gained to improve investment strategies and personal portfolio management. #### Recommendations **Biases and Portfolio Selection** is particularly suited for: - **Aspiring Investors:** Whether you're new to investing or looking to refine your approach, understanding behavioral biases is crucial to navigating the financial landscape effectively. - **Finance Professionals:** For those already in the finance sector, this course offers valuable insights that can enhance both personal and client investment strategies. - **Students of Finance:** If you are studying finance, this course is a comprehensive addition to your academic repertoire, providing practical applications of theoretical knowledge. The course is well-paced, allowing for deep engagement with the material, and it is backed by empirical research, offering a robust understanding of behavioral finance. The interactive format encourages learners to reflect on their biases and behaviors, fostering personal growth as investors. #### Conclusion In conclusion, **Biases and Portfolio Selection** is an insightful and transformative course that not only educates participants about the complexities of investor behavior but also prepares them to make better-informed financial decisions. By taking this course, you can move beyond traditional financial theory, embracing a more holistic view that includes the psychological factors at play in the investment world. Enroll today to unlock the secrets of smarter investing!

Syllabus

Efficient markets hypothesis and limits of arbitrage

This module introduces the third course in the Investment and Portfolio Management Specialization. In this module, we first present the efficient market hypothesis (EMH) – another pillar idea of modern finance. You will learn about its rationale as well as the empirical evidence that supports and challenges the predictions of the EMH such as anomalies. Finally, we will consider why smart money may sometimes fail to exploit away anomalies in financial markets.

In this module, we review the behavioral critique of market rationality. In contrast to the presumption that investors are rational, behavioral finance starts with the assumption that they are not. We will examine some of the information-processing and behavioral biases uncovered by psychologists in several contexts. In addition, we will consider alternative, more realistic ways of describing investor preferences.

In this module, we review a number of puzzles related to the aggregate stock market and the cross-section of average stock returns that have been documented in the literature. We examine how the behavioral biases and tendencies discussed in the previous module might result in some of these puzzles observed in financial markets.

In this last brief module, we turn our attention to the behavior of individual investors and review the empirical evidence on how behavioral biases and tendencies we discussed in the previous modules affect individual investor portfolio choice and trading decisions.