Evolutions and Challenges of Behavioral Finance

Dr. V. Raman Nair, Anu Antony

Abstract: This article presents the evolution of behavioral finance, which is a new approach in capital market. This study reveals the effect of psychological factors in investment decision making process, which was a strong contradiction to the Efficient Market Hypothesis. Behavioral finance is not a replacement to the classical finance paradigm, but an alternative solution to explain the market inefficiency and the irrational behavior of investor.

Keywords: behavioral finance, classical finance, market efficiency, investment decision, psychological factors, market anomalies