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Beyond Greed and Fear

Understanding Behavioral Finance and the Psychology of Investing

Hersh Shefrin

Publication Date - 26 September 2002

ISBN: 9780195161212

408 pages
6-1/8 x 9-1/4 inches

Shows you the most common, but costly mistakes money professionals make and how to avoid making them too.


Even the best Wall Street investors make mistakes. No matter how savvy or experienced, all financial practitioners eventually let bias, overconfidence, and emotion cloud their judgement and misguide their actions. Yet most financial decision-making models fail to factor in these fundamentals of human nature. In Beyond Greed and Fear, the most authoritative guide to what really influences the decision-making process, Hersh Shefrin uses the latest psychological research to help us understand the human behavior that guides stock selection, financial services, and corporate financial strategy. Shefrin argues that financial practitioners must acknowledge and understand behavioral finance--the application of psychology to financial behavior--in order to avoid many of the investment pitfalls caused by human error. Through colorful, often humorous real-world examples, Shefrin points out the common but costly mistakes that money managers, security analysts, financial planners, investment bankers, and corporate leaders make, so that readers gain valuable insights into their own financial decisions and those of their employees, asset managers, and advisors. According to Shefrin, the financial community ignores the psychology of investing at its own peril. Beyond Greed and Fear illuminates behavioral finance for today's investor. It will help practitioners to recognize--and avoid--bias and errors in their decisions, and to modify and improve their overall investment strategies.

About the Author(s)

Hersh Shefrin holds the Mario L. Belotti Chair in Finance at the Leavey School of Business, Santa Clara University.


"This refreshingly iconoclastic book awakens us all to how little we know about financial markets, and how much we have to discover. I particularly enjoyed the reference to the emperor's clothes worn by the mutual fund industry. Shefrin's clear reaffirmation of the fallibility of professional investors will lead even the most impressionable of investors to consider, yet again, the advantages of market indexing strategies."--John Bogle, Founder and Senior Chairman, The Vanguard Group, and author, Common Sense on Mutual Funds

"Behavioral finance is about normal people and the markets that drive them crazy. Shefrin's insights into these people and markets will provide you with solutions to many financial puzzles--as you read the book and long after you close it."--Meir Statman, Glenn Klimek Professor of Finance, Leavey School of Business, Santa Clara University

"Beyond Greed and Fear challenges your most fundamental assumptions about investing and uncovers psychological traps that may prevent you from achieving higher returns on your portfolio."--Martin S. Fridson, Managing Director, Merrill Lynch & Co., and author, How to Be a Billionaire

"Shefrin synthesizes a wealth of research and observations about human behavior and financial anomalies into a broad and deep perspective on financial markets. No other book so splendidly lays out the fundamentals of behavioral finance."--Robert Shiller, Stanley B. Resor Professor of Economics, Cowles Foundation for Research in Economics, Yale University

"Beyond Greed and Fear is the first truly comprehensive behavioral finance book written for practitioners. It should be required reading for portfolio managers and traders."--W. Van Harlow III, President and CIO, Strategic Advisors, Fidelity Investments

"One edition of this work should be in every investment collection"--CHOICE, H. Mayo

Table of Contents

    Part I: What Is Behavioral Finance
    1. Introduction
    2. Heuristic-Driven Bias: The First Theme
    3. Frame Dependence: The Second Theme
    4. Inefficient Markets: The Third Theme
    Part II: Prediction
    5. Trying to Predict the Market
    6. Sentimental Journey: The Illusion of Validity
    7. Picking Stocks to Beat the Market
    8. Biased Reactions to Earnings Announcements
    Part III: Individual Investors
    9. "Get-Evenitis": Riding Losers Too Long
    10. Portfolios, Pyramids, Emotions, and Biases
    11. Retirement Saving: Myopia and Self-Control
    Part IV: Institutional Investors
    12. Open-Ended Mutual Funds: Misframing, "Hot Hands", and Obfuscation Games
    13. Closed-End Funds: What Drives Discounts?
    14. Fixed Income Securities: The Full Measure of Behavioral Phenomena
    15. The Money Management Industry: Framing Effects, Style "Diversification", and Regret
    Part V: The Interface between Corporate Finance and Investment
    16. Corporate Takeovers and the Winner's Curse
    17. IPOs: Initial Underpricing, Long-term Underperformance, and "Hot-Issue" Markets
    18. Optimism in Analysts' Earnings Predictions and Stock Recommendations
    Part VI: Options, Futures, and Foreign Exchange
    19. Options: How They're Used, How They're Priced, and How They Reflect Sentiment
    20. Commodity Futures: Orange Juice and Sentiment
    21. Excessive Speculation in Foreign Exchange Markets
    Final Remarks

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