Behavioral finance models, anomalies, and factors affecting investor psychology

In traditional finance theories and in the efficient market hypothesis, human beings are regarded as rational entities. It has been accepted that people exhibit rational behavior in investment decisions. However, various anomalies have been observed as a result of the inability of these theories to explain the change in the markets. These anomalies have led to criticism of traditional finance theories and have been regarded as the beginning of behavioral finance. Behavioral finance theories and models argue that the definition of stock prices is influenced by psychological, cognitive and emotional factors of investors. The presence of investors, who do not act rationally on the stock market, and the fact that psychological and emotional factors are effective in the decision-making process distract the stock market from being effective. Determining the investor behaviors that cause the anomalies detected in the stock market and putting out the possible reasons is important in terms of estimating the share price. In this study, information was given on traditional finance theories that accept individuals as rational. Behavioral finance models and theories were examined to investigate irrational behavior. In addition, anomalies resulting from irrational behavior of investors and investor behavior were examined, and also the relationship between investor behaviors and anomalies was examined. © Springer International Publishing AG, part of Springer Nature 2018.