BEHAVIOURAL FINANCE AND ITS IMPLICATIONS FOR ASSET PRICING MODELS
Date
2024
Authors
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Publisher
Shanker Dev Campus
Abstract
This study explores the implications of behavioural finance on asset pricing models,
specifically within the context of the Nepal Stock Exchange (NEPSE). Traditional
asset pricing models, such as the Capital Asset Pricing Model (CAPM), often assume
rational investor behavior and market efficiency. However, these models frequently
overlook the psychological biases and emotions that influence investor decisions. By
integrating behavioral finance factors—such as momentum, volatility, and trading
volume—into an extended CAPM, this research aims to provide a more accurate
representation of market dynamics in Nepal. The findings reveal that behavioral
factors significantly impact stock returns, highlighting the limitations of traditional
models and underscoring the necessity of incorporating behavioral insights into asset
pricing frameworks. This study offers valuable implications for investors, financial
advisors, and policymakers, advocating for a more comprehensive approach to
understanding and predicting market behavior in emerging economies.