Author(s): Jianxu Shing
Behavioral finance bridges psychology and economic theory, aiming to understand how psychological influences and biases affect the financial decisions of individuals and institutions. Traditional finance assumes rational behavior and efficient markets, but real-world evidence shows that investors often act irrationally due to cognitive biases. This paper explores key cognitive biases including overconfidence, herd behavior, anchoring, and loss aversion and examines how they contribute to stock market fluctuations. By investigating the psychological underpinnings of investor behavior, this article sheds light on the causes of market anomalies and offers recommendations for investors and policymakers to mitigate the effects of such biases.