Why do small caps achieve higher risk-adjusted yields than large caps? Why do stock prices
increase or decrease upon an index entry respectively deletion? Why does January records higher
yields than the remaining months of the year? These as well as other observed capital market
anomalies or phenomena could be insufficiently explained by the classical capital market theory
which proceeds on the assumptions that all correspondent information are reflected in the stock
prices all negative effects are directly balanced on the market level and that efficiency of
arbitrage principle exists as well as that all market participants act rationally (i.e.
optimizing their benefits in the sense of the homo economicus). This motivated some economists
and psychologists to include behavioural scientific findings in their research of the
influences on the formation of prices on the capital market. In the 1980s the theory of
Behavioural Finance was developed which challenges the homo economicus. Researchers came to
the conclusion that humans are not only acting rational but that they are also influenced by
emotions knowledge and experiences. This new scientific behavioural oriented theory which is
today a separate branch of research contradicts the classical capital market theory and
supplies explanations for the observed phenomena on the capital market. The aim of this book is
to demonstrate how human behaviour influences the development on the capital market and how
Behavioural Finance serves as an explanation for the empirically observed capital market
anomalies. This book begins with the introduction of the theoretical basis of Behavioural
Finance and its emergence tasks as well as aims will be explained in detail. Subsequently
human s heuristics as well as anomalies and irrationalities in their decision making process
will be demonstrated. In the third chapter the capital market anomalies or phenomena as well
as the irrational and behavioural reasons for their existence will be described. The fourth
chapter covers empirical evidence for their existence as well as for the insufficient
explanatory power of the classical capital market theory. Concluding a critical acclaim target
achievements and perspectives concerning Behavioural Finance will be given.
