Business
Prospect theory explained
It challenges traditional economic theories that assumed individuals act in a purely rational manner when making choices. Instead, Prospect Theory introduces the idea that people value potential losses and gains differently, leading to decisions that deviate from rational expectations.
By Badhan Sen2 years ago in Chapters
Understanding overconfidence bias
This bias is pervasive in various aspects of human behavior, ranging from personal skills to financial investments, and has profound implications for decision-making. Understanding this bias helps individuals mitigate its effects and make more rational, informed choices.
By Badhan Sen2 years ago in Chapters
Loss aversion and its impact on investors
This principle, proposed by psychologists Daniel Kahneman and Amos Tversky in 1979, plays a significant role in decision-making processes, particularly in the context of investing. For investors, loss aversion can lead to suboptimal financial decisions, potentially hurting long-term wealth accumulation. Understanding how this cognitive bias works and its implications can help investors make more informed and rational choices.
By Badhan Sen2 years ago in Chapters
How to analyze financial institutions
It involves examining various factors that determine the performance, stability, and growth potential of banks, insurance companies, investment firms, and other financial entities. Here’s a guide on how to conduct a comprehensive analysis of financial institutions.
By Badhan Sen2 years ago in Chapters
Market microstructure theory
It focuses on the ways that market participants, such as buyers, sellers, and intermediaries, interact with each other and how these interactions impact the pricing, liquidity, and efficiency of financial assets. The theory addresses various aspects of market functioning, such as the role of information, the behavior of market makers, the impact of transaction costs, and the structure of trading mechanisms. By studying these elements, market microstructure theory aims to explain how prices are formed and how they reflect underlying economic fundamentals.
By Badhan Sen2 years ago in Chapters
Dark pools in stock markets
These platforms allow institutional investors, like hedge funds, pension funds, and large banks, to trade large quantities of stocks away from the public eye, without revealing their orders to the market until after the transaction is completed. The primary purpose of dark pools is to avoid slippage, which occurs when large trades impact the market price of a security.
By Badhan Sen2 years ago in Chapters
Risks of high-frequency trading
These trades often occur in fractions of a second, allowing traders to capitalize on minute price movements. While HFT has become an essential part of modern financial markets, its rapid growth has raised concerns about its potential risks. In this article, we will explore the risks associated with high-frequency trading.
By Badhan Sen2 years ago in Chapters
Role of financial intermediaries
These intermediaries play a crucial role in the functioning of modern economies by facilitating the flow of funds from savers to borrowers, helping individuals and businesses manage their financial needs efficiently. Their primary role is to reduce the costs and risks associated with financial transactions, ensuring that capital is allocated efficiently to promote economic growth.
By Badhan Sen2 years ago in Chapters
Understanding municipal bonds
These projects could range from building schools, highways, and hospitals to funding public transportation systems or water supply improvements. Municipal bonds are a vital part of the financial market, providing a means for governments to borrow money for long-term infrastructure development while offering investors a relatively safe, tax-advantaged investment option.
By Badhan Sen2 years ago in Chapters
Repo and reverse repo transactions
These short-term borrowing and lending arrangements are essential for the functioning of the financial system. They play a significant role in liquidity management for financial institutions, government securities trading, and central bank operations. These transactions help manage short-term funding needs, market liquidity, and interest rates.
By Badhan Sen2 years ago in Chapters
