ICM302-Behavioural Finance

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Terms in which taught: Spring term module
Non-modular pre-requisites:
Modules excluded:
Current from: 2022/3

Module Convenor: Dr Yueting Cui
Email: y.cui@icmacentre.ac.uk

Type of module:

Summary module description:

This module is positioned in the cross-section of Finance and Psychology. It provides an alternative framework to that of traditional neo-classical finance principles in explaining market behaviour and interpreting stylised characteristics. A variety of psychological principles and well-established cognitive biases are examined and connections are made with the influence they have on the investment (and corporate) decision making process. Market anomalies and puzzles are interpreted based on these connections.


Financial theories have traditionally assumed that rational, risk-averse investors trade in efficient and free-flowing asset markets. Academic research and practitioner experience have cast doubt on this paradigm, instead proposing that investors may not be utility maximisers, and that there may be impediments to the functioning of markets. This module will describe recent developments in the application of principles drawn from psychology to financial issues.


Assessable learning outcomes:

With this course students should be able to:

  • Evaluate the motivations for, and uses of, behavioural finance.

  • Explain why investors may not be utility maximisers and if so how they make their investment decisions.

  • List a number of asset pricing anomalies and discuss the relative merits of rational versus behavioural explanations for them.

  • Explain the importance of noise traders and investor sentiment in driving asset prices.

  • Define and elucidate the nature of the various types of speculative bubbles that may arise in financial market.

  • Suggest ways in which trading strategies could exploit the irrationality of other investors, and discuss the limitations of these strategies.

Additional outcomes:
Be in a position to explain and implement the basic investment principles of professional behavioural finance wealth managers.

Outline content:

Topic 1: The origins of behavioural finance

Topic 2: The psychology of investing

Topic 3: Combining behaviour and finance

Topic 4: Asset pricing bubbles

Topic 5: Behavioural corporate finance, corporate governance and ethics

Topic 6: The economics of happiness

Brief description of teaching and learning methods:

Lectures will be used to discuss both theoretical material and practical examples. The seminars will discuss non-assessed problem sets, case studies, and research papers from the academic finance literature.

Contact hours:
  Autumn Spring Summer
Lectures 20
Seminars 6
Guided independent study:      
    Wider reading (independent) 50
    Wider reading (directed) 47
    Advance preparation for classes 10
    Preparation for seminars 12
    Revision and preparation 15
    Essay preparation 40
Total hours by term 0 200 0
Total hours for module 200

Summative Assessment Methods:
Method Percentage
Written assignment including essay 60
Class test administered by School 40

Summative assessment- Examinations:
No final examination

Summative assessment- Coursework and in-class tests:

Students will select their essay title from a list that will be provided and write an essay of 3,000 words (deadline at the last week of the term/first week of summer term).

An in class test (1 hour and 30 minutes) takes place near the end of the term (week 8 or 9).

Formative assessment methods:

Penalties for late submission:

The below information applies to students on taught programmes except those on Postgraduate Flexible programmes. Penalties for late submission, and the associated procedures, which apply to Postgraduate Flexible programmes are specified in the policy “Penalties for late submission for Postgraduate Flexible programmes”, which can be found here: https://www.reading.ac.uk/cqsd/-/media/project/functions/cqsd/documents/cqsd-old-site-documents/penaltiesforlatesubmissionpgflexible.pdf
The Support Centres will apply the following penalties for work submitted late:

  • where the piece of work is submitted after the original deadline (or any formally agreed extension to the deadline): 10% of the total marks available for that piece of work will be deducted from the mark for each working day (or part thereof) following the deadline up to a total of five working days;
  • where the piece of work is submitted more than five working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.
The University policy statement on penalties for late submission can be found at: https://www.reading.ac.uk/cqsd/-/media/project/functions/cqsd/documents/cqsd-old-site-documents/penaltiesforlatesubmission.pdf
You are strongly advised to ensure that coursework is submitted by the relevant deadline. You should note that it is advisable to submit work in an unfinished state rather than to fail to submit any work.

Assessment requirements for a pass:
A mark of 50% overall.

Reassessment arrangements:
Re-submission of essays in September.

Additional Costs (specified where applicable):

Required text books: Ackert, L. and Deaves, R. (2010) “Behavioral Finance: Psychology, Decision-making and Markets”, South-Western/Cengage: £45-£55 

Last updated: 22 September 2022


Things to do now