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Table of Contents
List of Figures; List of Tables; 1 Introduction; 1.1 The Aim of the Book; 1.2 The Organization of the Book; References; Porfolio Theory, Decision-Making and Market Efficiency; 2 Investors' Portfolio Choice and Portfolio Theory; 2.1 Introduction to the Modern Portfolio Theory; 2.2 The Mean-Variance Analysis; 2.3 The Capital Asset Pricing Model (CAPM); 2.4 Using Regression to Determine the Alpha and Beta Coefficients; 2.5 Concluding Remarks; Appendix; References; 3 Decision-Making-Rational, Bounded, or Behavioral; 3.1 Utility Maximization and Risk Attitude
3.2 Expected Utility Theorem &!blankand the Axioms; 3.3 Behavioral Descriptive Models of Decision-Making; 3.3.1 Heuristics and Bounded Rationality; 3.3.2 The Prospect Theory and the Allais and Ellsberg Paradoxes; 3.3.3 Mental Accounting and Other Behavior; 3.4 Concluding Remarks; References; 4 Market Efficiency and the Standard Asset Pricing Models Used to Test Market Efficiency; 4.1 The Efficient Market Hypothesis (EMH); 4.2 Complete and Incomplete Markets; 4.3 Commonly Used Asset Pricing Models; 4.3.1 The Stochastic Discount Factor; 4.3.2 The Arbitrage Pricing Theory
4.3.3 The Fama-French Three-Factor Model4.3.4 Carhart's Four-Factor Model; 4.4 Asset Pricing Models and Predictability-Empirical Tests of the EMH; 4.5 Concluding Remarks; References; Investor Behavior, Proximity Bias and Firms' Capital Structure; 5 The Financial Behavior of Individual Investors; 5.1 Investor Overconfidence; 5.2 The Disposition Effect; 5.3 Trading Experience; 5.4 Reinforcement Learning; 5.5 Attention and Sensation-Seeking; 5.6 Non-speculative Needs; 5.7 Social Interaction, Community Effects, and Herding; 5.8 Mobility; 5.9 Contrarian Behavior; 5.10 Cognitive Abilities
5.11 Preference for Skewness5.12 Investor Sophistication; 5.13 Concluding Remarks; References; 6 The Measurement of Proximity Bias; 6.1 Home Bias Measures; 6.1.1 Absolute, Relative, and Normalized Home Bias; 6.1.2 Domestic Vs. Foreign Bias (Underweighting); 6.1.3 Measuring Bilateral Biases-A Hypothetical Example; 6.1.4 Measuring Anomalies-The Hypothetical Example Extended; 6.1.5 Determining the Relevant Benchmark-The Optimal World Market Portfolio; 6.2 Local Bias Measures; 6.2.1 The Value-Weighted Distance Approach; 6.2.2 The Gravity-Based Distance Approach
6.2.3 The Administrative-Based Definition6.2.4 The Aggregate Local Bias of Capital Invested; 6.3 Concluding Remarks; References; 7 Motives and Reasons for Proximity Bias; 7.1 Reasons for Local Bias; 7.2 Birthplace Bias; 7.3 Concluding Remarks; References; 8 Local Bias and Capital Structure; 8.1 Capital Structure Theories; 8.2 Local Bias and Financial Decision-Making; 8.2.1 The Pecking-Order of Local Firms; 8.2.2 Governance and Conflict of Interest; 8.2.3 Investor Preferences and Capital Structure; 8.3 Capital Structure and Local Bias-Swedish Data; 8.3.1 Data and Method; 8.3.2 Empirical Results
3.2 Expected Utility Theorem &!blankand the Axioms; 3.3 Behavioral Descriptive Models of Decision-Making; 3.3.1 Heuristics and Bounded Rationality; 3.3.2 The Prospect Theory and the Allais and Ellsberg Paradoxes; 3.3.3 Mental Accounting and Other Behavior; 3.4 Concluding Remarks; References; 4 Market Efficiency and the Standard Asset Pricing Models Used to Test Market Efficiency; 4.1 The Efficient Market Hypothesis (EMH); 4.2 Complete and Incomplete Markets; 4.3 Commonly Used Asset Pricing Models; 4.3.1 The Stochastic Discount Factor; 4.3.2 The Arbitrage Pricing Theory
4.3.3 The Fama-French Three-Factor Model4.3.4 Carhart's Four-Factor Model; 4.4 Asset Pricing Models and Predictability-Empirical Tests of the EMH; 4.5 Concluding Remarks; References; Investor Behavior, Proximity Bias and Firms' Capital Structure; 5 The Financial Behavior of Individual Investors; 5.1 Investor Overconfidence; 5.2 The Disposition Effect; 5.3 Trading Experience; 5.4 Reinforcement Learning; 5.5 Attention and Sensation-Seeking; 5.6 Non-speculative Needs; 5.7 Social Interaction, Community Effects, and Herding; 5.8 Mobility; 5.9 Contrarian Behavior; 5.10 Cognitive Abilities
5.11 Preference for Skewness5.12 Investor Sophistication; 5.13 Concluding Remarks; References; 6 The Measurement of Proximity Bias; 6.1 Home Bias Measures; 6.1.1 Absolute, Relative, and Normalized Home Bias; 6.1.2 Domestic Vs. Foreign Bias (Underweighting); 6.1.3 Measuring Bilateral Biases-A Hypothetical Example; 6.1.4 Measuring Anomalies-The Hypothetical Example Extended; 6.1.5 Determining the Relevant Benchmark-The Optimal World Market Portfolio; 6.2 Local Bias Measures; 6.2.1 The Value-Weighted Distance Approach; 6.2.2 The Gravity-Based Distance Approach
6.2.3 The Administrative-Based Definition6.2.4 The Aggregate Local Bias of Capital Invested; 6.3 Concluding Remarks; References; 7 Motives and Reasons for Proximity Bias; 7.1 Reasons for Local Bias; 7.2 Birthplace Bias; 7.3 Concluding Remarks; References; 8 Local Bias and Capital Structure; 8.1 Capital Structure Theories; 8.2 Local Bias and Financial Decision-Making; 8.2.1 The Pecking-Order of Local Firms; 8.2.2 Governance and Conflict of Interest; 8.2.3 Investor Preferences and Capital Structure; 8.3 Capital Structure and Local Bias-Swedish Data; 8.3.1 Data and Method; 8.3.2 Empirical Results