International Journal For Multidisciplinary Research

E-ISSN: 2582-2160   •   Impact Factor: 9.24

A Widely Indexed Open Access Peer Reviewed Multidisciplinary Bi-monthly Scholarly International Journal

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Volume 7 Issue 3
May-June 2025

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The Role of Behavioral Finance in Market Anomalies and Investor Biases

Author(s) Miss. Sushma Karnati
Country India
Abstract Traditional finance theory is built on the assumption that investors are rational and markets are efficient. However, real-world financial behavior often deviates from these principles, giving rise to anomalies such as asset bubbles, overreaction, and momentum effects. Behavioral finance bridges the gap between theoretical models and actual investor behavior by integrating insights from psychology and economics. This paper explores the foundational concepts of behavioral finance and their role in understanding how cognitive biases and emotional responses influence financial decision-making.

Furthermore, the paper discusses the implications of behavioral finance for portfolio management, financial planning, and policymaking. It argues for the integration of behavioral insights into investor education programs and regulatory frameworks to foster more informed and resilient financial decision-making. While behavioral finance does not entirely reject traditional models, it provides a more nuanced understanding of market dynamics by acknowledging human limitations.

This paper highlights the growing importance of behavioral finance in both academic research and practical applications. As markets become more complex and information-rich, recognizing and mitigating the effects of psychological biases is critical for achieving long-term financial stability and improved investor outcomes.
Field Business Administration
Published In Volume 6, Issue 3, May-June 2024
Published On 2024-06-06
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E-ISSN 2582-2160
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