BEHAVIOURAL FINANCE AND THE PSYCHOLOGY OF INVESTMENT

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Behavioural Finance and the Psychology of Investment – Assessment 2013-2014
Contact details
Arief Daynes: tel. 02392 844182, extn. 4182, email [email protected]
David Latimer: tel. 02392 844013, extn. 4013, email [email protected]
Paraskevas Pagas: tel. 02392 844721, extn. 4721, email [email protected]
Assignment
The assignment is a written, individual assignment worth 40% of the total grade for the unit. You are asked to write a 2,000 word essay on the following.
The requirements of the assignment are important. Please read the following carefully.
The UK insurance industry currently has the following life-expectancy forecasts for people in their early 20s: Men, 82 years; Women, 84 years; at least one partner of a couple, 86 years. Thus, most people on the Behavioural Finance unit have lifetime investment horizons of over 60 years. This is what we mean by the very long term.
For the very long term investor there is something special about the stock market. There are strong arguments and evidence that say that the stock market is the best asset class for the very long term investor. This means that for your very long term future you should be investing in the stock market. So even if your future career has nothing to do with the stock market, you still have to know how the stock market works.
Assignment requirement: Write a 2,000 word essay. In the course of your essay you must answer the following questions (not necessarily in the same order in which they are given):
(1) Explain why the stock market is regarded as the best asset class for the very long term investor.
(2) What is the difference between passive investing and active investing?
(3) If you believe in modern finance and the EMH you will be a passive investor. If you believe that behavioural finance can be applied to very long term stock market investing you will be an active investor. Explain why?
(4) Are you going to be an active or a passive…

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