Making sense of all these factors and being in a position to benefit from the opportunities they present requires a solid grounding in theoretical and empirical concepts in finance and investments. This grounding needs to cover not just fundamentals of finance theory but also contemporary topics in finance such as role of AI, FinTech, Behavioural Finance, Quantitative Finance, and other systems and instruments in use in financial markets. While undergraduate courses in finance can prepare students in the basics and provide direction in terms of areas of specific interest, the required depth and contemporaneous coverage of a robust Master’s level course, such as a M.Sc. Finance are necessary elements in bridging the gap between industry needs and finance education through recognition of the current challenges of the finance industry.

Such a Master’s programme in finance would enable students to better understand and utilize the information content provided by a data-rich world in financial decision-making. Students would also learn financial tools and strategies and their applications to develop integrated and innovative solutions to address current investment challenges faced by individuals and institutions and learn to employ available tools and technologies in creating sustainable financial solutions, understanding the process of investment, portfolio design, and trading, and learn advanced topics in behaviour science, financial markets, instruments, and systems.

M.Sc. Finance Programmes that offer students a chance to specialize in topical areas such as Quantitative Finance, Behavioral Finance, etc. are particularly valuable as they offer an opportunity to build expertise in subjects that have significant application in the real world and thus help solidify career prospects. The fact that this is achieved through a focus on rigorous research methods ensures that there is a genuine depth of learning. Couple this with a comprehensive curriculum and a customised pedagogy that has the coverage, depth expected from a Master’s level course, and experiential learning opportunities for actually utilising tools and techniques in a real world setting and you have an industry-ready skillset when you graduate with your Master’s degree.

With such a knowledge base, graduates of such M.Sc in Finance programmes can expect to target professional opportunities in a wide range of areas of finance and investments such as analysts, traders, portfolio managers, etc., at pension funds, insurance companies, hedge funds, mutual funds, and family offices. Alternatively, such an education can help graduates manage their own portfolios or undertake active stock trading with a deeper understanding of pricing, financial models, market behaviour, and more.

Jindal School of Banking & Finance (JSBF) is a research-led, future-oriented and interdisciplinary global school focused on developing a new generation of leaders for the financial services industry. JSBF offers a Master of Science (M.Sc.) in Finance that provides theoretical and empirical concepts in finance, financial models, and pricing. The main objective of the programme is to equip students with the acumen and tools for impeccable financial decision-making. Students can then deploy this knowledge to manage investments, construct asset portfolios, trade in stock markets, manage risk and manage wealth, among others. Know all about the programme here.

Evolution of Behavioural Finance

Following the work of Richard Thaler, Daniel Kahneman, Amos Tversky and others a new branch of Economics was born. Although the use of behavioral factors in explaining individual and collective choice is not new, work by Thaler and others was responsible in formalizing the discipline. Some of the leading economists from the 18^th to the first half of the 20^th century such as Adam Smith, John Maynard Keynes and Irving Fisher had already brought aspects of human psychology and behavior into their writings. However, the rational expectations revolution of the second half of the 20^th century made almost everyone believe in the rational optimization behavior of agents which dominated the economics and finance field.

What is behavioral finance? What do they contribute to our understanding of financial markets? These questions are perhaps best understood by some examples:

Thaler was a graduate student at the University of Rochester in the early 1970s. He was working on a dissertation on the value of human life when one day he decided to conduct some surveys and stumbled upon one of the fundamental results in behavioral economics known as the ‘endowment effect’:  in his survey participants were asked how much they would be willing to pay to reduce their probability of dying over the next year by 0.001. He also asked them how much they would need to be paid in order to accept an 0.001 increase in this probability.        

After collecting this data, Thaler noticed something curious: the amount people were willing to pay to reduce their probability of dying was much lower than the amount they required in order to accept an increase in this probability, even though traditional economic theory predicted that the two quantities would be roughly equal.

This resulted in the ‘endowment effect’ literature where the amount people are willing to pay for an object of economic value is much lower than the amount they are willing to accept in order to give the object up.

Such theories where the psychology of the human brain is brought in to explain behavioural anomalies in human and market behaviour has led to the birth of and Behavioural Finance. There are many factors that go into decision making apart from selfish rationalism. These include cognitive, cultural, psychological, emotional and social factors. Some of the theories that have been developed following the pioneering work of Thaler are: nudge theory, bounded rationality, prospect theory, herd behaviour etc.

Why study Behavioral Finance?

The main difference between traditional finance and behavioral finance is the fact that traditional finance theories require the assumption that agents are rational. This is equivalent to assuming that no other factors apart from their narrow self-interest and rationality affect their behavior. While rationality is a sensible thing to assume, surely the decisions that agents take with regard to finance are affected by their culture, emptions, social norms and psychological/cognitive factors.

Behavioral finance tries to find explanations with regard to when and why people deviate from rational behavior and rational expectations. This does not mean behavioral finance gets rid of rational behavior and relies on irrationality. As Kenneth Arrow said – there can be no theory if there is no rationality. Instead, behavioral finance builds on traditional rationality to include behavioral traits to create a more nuanced understanding of financial decisions.

A good understanding of psychology, economics and social sciences will help a finance professional develop long-term relationship with their clients. Ultimately the decisions made in the financial markets are by humans and therefore a financial advisor needs to take into consideration the human elements of their clients while they provide investment advice or conduct financial analysis. The complex nature of human beings is best disentangled when finance professionals take into consideration emotions and psychological factors.

The Nobel Prize winning economist Daniel Kahneman, investors who invest on their own make ‘large and expensive’ mistakes. This is why investment firms, whether it be portfolio management or wealth management firms, need to be aware of the biases that inevitably creep in while making decisions. This is what Richard Thaler calls ‘anomalies’.

One example of such a bias is called ‘recency bias’. This bias arises when investors seek information that reinforces their own or their peers’ established perceptions. In volatile markets, investors may overestimate the risk in their portfolio and rotate towards safety assets without any economic or fundamental reason for it. On the other hand, positive short term gains can lead to investors taking unnecessary risks.

Careers in Behavioral Finance

Being a new field of inquiry, behavioral finance poses many questions that have not been researched earlier. The availability of high frequency data and advanced software now make it possible for researchers – both in academia and corporate firms to analyze the irregularities in financial markets and come up with detailed explanations as to why these irregularities occur. And how does an investor protect themselves from making large and expensive mistakes and pick investment avenues which are best for them.

In academics the pursuit of unique and innovative research questions can be a lot of fun. In today’s world, firms who invest in hiring researchers with proper training in how financial markets operate will beat those who do not. Therefore, the understanding of behavioral aspects of finance can help in building exciting careers both in academia and industry. The true competitive advantage is knowledge and those who understand finance from a behavioral point of view, in addition to the conventional theories will always have a competitive edge. The large financial industry, in India and abroad is always on the lookout for well-trained professionals who enjoy learning, researching and taking action on the basis of their research. Financial advisors need to find the right balance between what their clients want and what they need. And this can only be done with a good understanding of finance, cognitive biases and psychological factors that go into decision-making.

Afterall we are humans, not robotic self-interest ‘rational economics actors’, right?

Programmes Offered by JGU:
91̽�� offers an innovative 2-year M.Sc. in Finance programme. Behavioural Finance is a specialization offered as part of the M.Sc. Finance Programme. This unique and rigorous programme uses Jindal School of Banking & Finance’s focused and data intensive approach to deliver a one-of-a-kind and unique curriculum.

The article is written by Prof. Soumyadip Roy, Associate Professor and Assistant Dean (VITAL), Jindal School of Banking & Finance, 91̽��.

Financial markets are characterised by volatility, with prices moving in cycles of peaks and troughs. Lately, liquidity fuelled booms and busts have become common occurrences. In light of this, the assumptions of ‘Rationality’ and ‘Efficient Markets’ have been in dispute, but now it is widely acknowledged that much of this market volatility has its source in human behaviour and its quirks rather than fundamentals or quantitative factors. After all, what constitutes ‘markets’ if not their very human participants who make them up, technical trading strategies and algorithmic trading notwithstanding?

Analysing Emotions

It is becoming increasingly necessary to understand, analyse, and build strategies around human emotions to the extent they move financial decisions and markets. This is where Behavioural Finance comes in. The broader aim of Behavioural Finance is to narrow the gap between the theory of rational investor decisions and their actual behavioural abilities when it comes to making investment decisions. The formal study of Behavioural Finance helps to equip us with knowledge about the principles of psychology of decision-making under conditions of risk and uncertainty. This specialised knowledge can then be deployed to formulate practical applications for managing assets and constructing portfolios. The knowledge is specialised since it combines two domains that are no just technical (psychology/human behaviour and finance) but also as different as chalk and cheese! Thankfully, this niche field has received attention from serious academics from finance, economics and psychology.

Individual and Professional Investment

As Individual investors ‘suffer’ from behavioural biases, can they turn to professional investors? Well, professionals suffer from similar biases that afflict individuals. In fact, their biases many a time results in overconfidence, familiarity bias and disposition effect. Past performance is no guarantee for future results. Many investors and the markets rely on and follow ‘hot’ fund managers. The ‘hot-hand’ fallacy creates a self-fulfilling prophecy, which can then lead to wild swings when the fund manager goes ‘cold’. The current craze with cryptocurrency and Non-Fungible Assets (NFTs) are partially driven by crowd mentality. Can the wild swings in these new investment vehicles be better predicted and managed?

The need for Behavioural Finance

The need for such specialised knowledge is becoming obvious given how much finance and economics have gained from insights about psychological processes. Five Nobel Prizes in Economics have been awarded for path-breaking work on cognition, nudge theory, market behaviour and decision making, which now offers a deeper understanding of complex human behaviour. The fundamental need for a structured Behavioural Finance course is driven by the fact that it can help us understand how financial decisions around investments, savings, risk and leverage, are influenced by human emotion and cognitive biases that affect how people react to events and information. Such insights are invaluable in building effective investment strategies. Institutional and individual investors can incorporate explanations for how bubbles like the dot-com era and the 2007 credit-fuelled boom occur (followed by the inevitable crashes), or even how corporate scandals like the ones at Enron, WorldCom, or Satyam Computer Services occur. After all, the only way to profit from market cycle or corporate events is to understand the fundamental theories and models that underpins these changes.

How Behavioural Finance studies help

A specialised Behavioural Finance course will help learners to:
• Understand the cognitive elements that affect financial decisions
• Identify the psychological factors that contribute to market behaviour and decision errors
• Understand how to adapt the process of investment analysis, portfolio design, and resource allocation using principles from psychology
• Manage financial risks in a better manner
• Learn niche, specialised, and advanced topics in wealth management, financial analysis, risk management, neuro
finance, etc.

Graduates of such specialised courses can also target professional opportunities in a wide range of areas of finance and investments such as analysts, traders, portfolio managers, etc., at pension funds, insurance companies, hedge funds, mutual funds, and family businesses. Perhaps one way to understand the value of studying Behavioural Finance is that it helps us make more rational decisions by acknowledging our inherent irrationality and benefiting from that of others!

Programmes Offered by JGU

91̽�� offers an innovative 2-year M.Sc. in Finance programme. Behavioural Finance is a specialization offered as part of the M.Sc. Finance Programme.

This unique and rigorous program uses Jindal School of Banking & Finance’s focused and data-intensive approach to deliver a one-of-a-kind and unique curriculum.

The article is written by Prof. Ram B. Ramachandran, Professor and Vice Dean, 91̽�� and was originally published in the .

The main discussion point with the LIC IPO is whether the objective of the government is to make the state-owned entity market oriented, and market disciplined, or is it to raise money to fund the government expenditures. All facts and figures point to the latter; and if such is the case, the question is whether the funds raised by the government through the LIC IPO will be sufficient to fund a part of its massive INR 7.5 trillion capital expenditure in fiscal 2023, or for that matter attain the estimated disinvestment figure of INR 78,000 crore, and in all this would it be able to bring down the fiscal deficit numbers to a tolerable level. With the estimated fiscal deficit of 6.9%, which is above the budgeted 6.8%; and the expectation to bring it down to 6.4% in the next fiscal, which is still more than double the Fiscal Responsibility and Budget Management (FRBM) level of 3%, the LIC IPO may be inadequate.

Although the government has setup the National Monetisation Pipeline, wherein existing public assets worth INR 6 trillion will be monetised by leasing them out to private operators for fixed terms, and the proceeds will be used for new infrastructure investment. The plan has two significant impediments: first being the uncertain revenue potential because of the numerous uncertainties associated with pricing, bill collection, asset quality, regulatory framework, and frequent policy reversals; and second being the expected efficiency gains by leasing it out to domestic private operators.

All in all, it seems that the government may have to sell a stake of more than 5% in the LIC IPO if it wants to walk the path of fiscal consolidation. A beneficial side effect of selling a larger stake by the government in LIC is that it will reduce the fiscal dominance on monetary policy. Based on the Report of the Comptroller and Auditor General of India on Recapitalisation of Public Sector Banks, the government holds a significant stake of 10 – 11% in almost all the public sector banks through LIC. A reduction of the government’s stake in LIC will indirectly result in added market discipline and regulatory adherence for PSBs. The positive effect of this will be felt in the banking sector in the form of reduction and timely resolution of NPAs.

The article is written by Dr. Sudipta Sen, Associate Professor and Associate Dean (Academic Affairs), Jindal School of Banking & Finance.

In addition to the success of the UPI system as showcased through its widespread adoption and the rapid pace of growth, the recently concluded financial year (FY 2021-22) also saw strides being made in the adoption of the UPI platform at an international level. The Reserve Bank of India and the Monetary Authority of Singapore announced plans in September 2021 to link the UPI system with Singapore’s PayNow system, enabling seamless, low-cost transfers between bank account holders in the two countries. This linkage is expected to go live in July 2022. Nepal became the first foreign country to adopt the UPI platform for “the digitalisation of cash transactions”. Going ahead, Nepal’s adoption of the UPI platform could potentially act as a precursor step to opening up cross-border real-time peer-to-peer payments between India and Nepal. These developments – a consistent growth in the number and volume of domestic UPI transactions, adoption of the UPI platform by other countries, and launching cross-border peer-to-peer transaction services with other countries – provide further evidence of the promise of the UPI platform. This promise was recognised early on when tech giants like Google had recommended the UPI as an example that the US Federal Reserve should emulate in its effort to build the FedNow, a new interbank real-time settlement system for the USA.

However, despite all the accolades that UPI has received so far, there are still some drawbacks to the platform which need to be overcome. One of the main challenges to the broader adoption of UPI was the inability of users without smartphones or mobile internet access to access the system (although users could utilise USSD based services to make UPI transactions, this feature was not very popular). NPCI (the organisation that developed the UPI platform) and RBI recently launched the UPI Pay123 system for users without access to a smartphone, mobile internet, and USSD based services in March 2022. This initiative is expected to provide the subsequent surge in new users’ adoption of the UPI platform.

Another concern is the large number of low-value transactions made through the UPI platform. NPCI estimates that 75% of the retail transactions in India are below the value of INR 100 each. When it comes to UPI transactions, this number is equally high, with over 50% of the offline transactions (transactions conducted in physical stores) being less than INR 200 in value (). The low value of these transactions combined with the MDR (Merchant Discount Rate) charges on UPI transactions being reduced to zero doesn’t incentivise the market to develop innovative solutions to meet challenges.

The final concern is about the nature of NPCI itself. NPCI is the organisation operating retail and settlement systems in India. All payment systems like NEFT, ECH, RTGS, IMPS, UPI, etc., are managed by NPCI. This has raised concerns that NPCI may have become too big to fail and business continuity challenges in case of any systems issues facing the payments systems. RBI had recently invited applications from interested banks and companies to form a New Umbrella Entity (NUE) – an exercise which saw active interest from several large Indian banks, Payment aggregators like VISA and Mastercard, and corporates like the Tata group and Reliance group. However, these plans were put on hold for the time being. Given the rapid increase in transaction volume and value of retail digital payments, it may be time for RBI to restart the process of issuing an NUE license (the RBI Governor has recently announced that the NUE applications are under consideration).

The article is written by Dr. Keerti Pendyal, Assistant Professor and Assistant Dean (Outreach & Promotion), Jindal School of Banking & Finance.

We are often caught contemplating the volatility of the stock market or the patterned rise in the prices of petrol, for instance, without factoring in the volatility of the very force that influences them, i.e. the force of human behaviour. Not that understanding the fundamental and technical aspects of finance are unimportant; it rather forms the core, but without interpreting the human reactions, emotions, and cognitive biases, this study is incomplete and defective.

It is not a challenge to assess why studying human behaviour’s impact on finance is vital. After all, our decision as a customer ultimately frames different financial aspects of a product at the micro level and the total market at the macro level. Everything regarding money and the economy is determined by how humans act in the market, which is, in turn, dependent on our behavior as individual consumers and collectively as a society.

To better comprehend the significance of human psychology in finance in the context of academic programs, one must examine how it is taught in educational institutions. As previously said, we study economics and finance using models and theories that are always founded on certain assumptions. We do not consider the consumers’ human behaviour in these models for the sake of convenience and linearity. This is because we humans do not all behave in the same way, and each individual is unique in terms of how they act and make judgments.

When studying economic models, it’s nearly impossible to consider the diversity of human behaviour. As a result, among many assumptions we make, we merely presume consumer rationality, but it doesn’t stand its ground at a societal level. While these models based on such assumptions can help grasp various concepts, the lack of information about human behaviour in them leaves our comprehension of economic and financial ideas incomplete.

Behavioural Finance is dedicated to addressing this gap in our understanding of how we, as people, influence the financial decisions of market participants. Also, it helps assess how our market actions affect the economy of our society in the longer run. Our choices, while often well-intentioned, are not necessarily reasonable. We may make a decision simply based on our feelings and intuition. Such a step can lead to a slew of bad investments, poor resource allocations, as well as erroneous risk estimates, and so on.

No matter how deeply we delve into these decisions’ financial nuances and repercussions, they are all influenced by distinct human characteristics. This is to say, that without the study of decision-making and more broadly, human behaviour, the study of finance is incomplete. This is precisely where the know-how of the field of ‘Behavioral Finance’ should come in handy. Thus, I firmly believe that greater integration of these two disciplines the need of the hour.

To achieve this end, we at 91̽�� have introduced the M.Sc. programmes in Finance. I believe the course offer a fresh approach, where psychological knowledge serves as the foundation for making informed financial decisions. To re-assert, a psychologically informed lens into finance is the very catalyst we need to step into a financially rewarding future.

Daniel Kahneman, a professor of Psychology at Princeton is someone whom I often quote as a pioneering example. He dedicated his life to research that revealed deep-rooted biases that often interfere with our ability to make sound decisions. While he came from the field that investigates human behaviour, his work generated an impact on the world of finance so significant that he was awarded the Nobel Prize in Economic Sciences in 2002. Kahneman, while the most widely known, is not the only psychological scholar to create ripples in the waters of the financial world. No less than five Nobel Prizes have been awarded to behavioural research that reshaped our approach to finance.

Diving deeper into this ever-evolving lens, it is essential to acknowledge that perhaps our conventional understanding of money-matters, both at the micro and macro levels, rarely intersects with our understanding of human behaviour. And that is what precisely has to change!

The article is written by Prof. (Dr.) Sanjeev P. Sahni, Principal Director, Jindal Institute of Behavioural Sciences (JIBS).

Evolution of Behavioural Finance

Following the work of Richard Thaler, Daniel Kahneman, Amos Tversky and others a new branch of Economics was born. Although the use of behavioral factors in explaining individual and collective choice is not new, work by Thaler and others was responsible in formalizing the discipline. Some of the leading economists from the 18^th to the first half of the 20^th century such as Adam Smith, John Maynard Keynes and Irving Fisher had already brought aspects of human psychology and behavior into their writings. However, the rational expectations revolution of the second half of the 20^th century made almost everyone believe in the rational optimization behavior of agents which dominated the economics and finance field.

What is behavioral finance? What do they contribute to our understanding of financial markets? These questions are perhaps best understood by some examples:

Thaler was a graduate student at the University of Rochester in the early 1970s. He was working on a dissertation on the value of human life when one day he decided to conduct some surveys and stumbled upon one of the fundamental results in behavioral economics known as the ‘endowment effect’:  in his survey participants were asked how much they would be willing to pay to reduce their probability of dying over the next year by 0.001. He also asked them how much they would need to be paid in order to accept an 0.001 increase in this probability.        

After collecting this data, Thaler noticed something curious: the amount people were willing to pay to reduce their probability of dying was much lower than the amount they required in order to accept an increase in this probability, even though traditional economic theory predicted that the two quantities would be roughly equal.

This resulted in the ‘endowment effect’ literature where the amount people are willing to pay for an object of economic value is much lower than the amount they are willing to accept in order to give the object up.

Such theories where the psychology of the human brain is brought in to explain behavioural anomalies in human and market behaviour has led to the birth of and Behavioural Finance. There are many factors that go into decision making apart from selfish rationalism. These include cognitive, cultural, psychological, emotional and social factors. Some of the theories that have been developed following the pioneering work of Thaler are: nudge theory, bounded rationality, prospect theory, herd behaviour etc.

Why study Behavioral Finance?

The main difference between traditional finance and behavioral finance is the fact that traditional finance theories require the assumption that agents are rational. This is equivalent to assuming that no other factors apart from their narrow self-interest and rationality affect their behavior. While rationality is a sensible thing to assume, surely the decisions that agents take with regard to finance are affected by their culture, emptions, social norms and psychological/cognitive factors.

Behavioral finance tries to find explanations with regard to when and why people deviate from rational behavior and rational expectations. This does not mean behavioral finance gets rid of rational behavior and relies on irrationality. As Kenneth Arrow said – there can be no theory if there is no rationality. Instead, behavioral finance builds on traditional rationality to include behavioral traits to create a more nuanced understanding of financial decisions.

A good understanding of psychology, economics and social sciences will help a finance professional develop long-term relationship with their clients. Ultimately the decisions made in the financial markets are by humans and therefore a financial advisor needs to take into consideration the human elements of their clients while they provide investment advice or conduct financial analysis. The complex nature of human beings is best disentangled when finance professionals take into consideration emotions and psychological factors.

The Nobel Prize winning economist Daniel Kahneman, investors who invest on their own make ‘large and expensive’ mistakes. This is why investment firms, whether it be portfolio management or wealth management firms, need to be aware of the biases that inevitably creep in while making decisions. This is what Richard Thaler calls ‘anomalies’.

One example of such a bias is called ‘recency bias’. This bias arises when investors seek information that reinforces their own or their peers’ established perceptions. In volatile markets, investors may overestimate the risk in their portfolio and rotate towards safety assets without any economic or fundamental reason for it. On the other hand, positive short term gains can lead to investors taking unnecessary risks.

Careers in Behavioral Finance

Being a new field of inquiry, behavioral finance poses many questions that have not been researched earlier. The availability of high frequency data and advanced software now make it possible for researchers – both in academia and corporate firms to analyze the irregularities in financial markets and come up with detailed explanations as to why these irregularities occur. And how does an investor protect themselves from making large and expensive mistakes and pick investment avenues which are best for them.

In academics the pursuit of unique and innovative research questions can be a lot of fun. In today’s world, firms who invest in hiring researchers with proper training in how financial markets operate will beat those who do not. Therefore, the understanding of behavioral aspects of finance can help in building exciting careers both in academia and industry. The true competitive advantage is knowledge and those who understand finance from a behavioral point of view, in addition to the conventional theories will always have a competitive edge. The large financial industry, in India and abroad is always on the lookout for well-trained professionals who enjoy learning, researching and taking action on the basis of their research. Financial advisors need to find the right balance between what their clients want and what they need. And this can only be done with a good understanding of finance, cognitive biases and psychological factors that go into decision-making.

Afterall we are humans, not robotic self-interest ‘rational economics actors’, right?

The article is written by Prof. Soumyadip Roy, Associate Professor and Assistant Dean (VITAL), Jindal School of Banking & Finance, 91̽��

Financial markets are characterised by volatility, with prices moving in cycles of peaks and troughs. Lately, liquidity fuelled booms and busts have become common occurrences. In light of this, the assumptions of ‘Rationality’ and ‘Efficient Markets’ have been in dispute, but now it is widely acknowledged that much of this market volatility has its source in human behaviour and its quirks rather than fundamentals or quantitative factors. After all, what constitutes ‘markets’ if not their very human participants who make them up, technical trading strategies and algorithmic trading notwithstanding?

Analysing Emotions

It is becoming increasingly necessary to understand, analyse, and build strategies around human emotions to the extent they move financial decisions and markets. This is where Behavioural Finance comes in. The broader aim of Behavioural Finance is to narrow the gap between the theory of rational investor decisions and their actual behavioural abilities when it comes to making investment decisions. The formal study of Behavioural Finance helps to equip us with knowledge about the principles of psychology of decision-making under conditions of risk and uncertainty. This specialised knowledge can then be deployed to formulate practical applications for managing assets and constructing portfolios. The knowledge is specialised since it combines two domains that are no just technical (psychology/human behaviour and finance) but also as different as chalk and cheese! Thankfully, this niche field has received attention from serious academics from finance, economics and psychology.

Individual and Professional Investment

As Individual investors ‘suffer’ from behavioural biases, can they turn to professional investors? Well, professionals suffer from similar biases that afflict individuals. In fact, their biases many a time results in overconfidence, familiarity bias and disposition effect. Past performance is no guarantee for future results. Many investors and the markets rely on and follow ‘hot’ fund managers. The ‘hot-hand’ fallacy creates a self-fulfilling prophecy, which can then lead to wild swings when the fund manager goes ‘cold’. The current craze with cryptocurrency and Non-Fungible Assets (NFTs) are partially driven by crowd mentality. Can the wild swings in these new investment vehicles be better predicted and managed?

The need for Behavioural Finance

The need for such specialised knowledge is becoming obvious given how much finance and economics have gained from insights about psychological processes. Five Nobel Prizes in Economics have been awarded for path-breaking work on cognition, nudge theory, market behaviour and decision making, which now offers a deeper understanding of complex human behaviour. The fundamental need for a structured Behavioural Finance course is driven by the fact that it can help us understand how financial decisions around investments, savings, risk and leverage, are influenced by human emotion and cognitive biases that affect how people react to events and information. Such insights are invaluable in building effective investment strategies. Institutional and individual investors can incorporate explanations for how bubbles like the dot-com era and the 2007 credit-fuelled boom occur (followed by the inevitable crashes), or even how corporate scandals like the ones at Enron, WorldCom, or Satyam Computer Services occur. After all, the only way to profit from market cycle or corporate events is to understand the fundamental theories and models that underpins these changes.

How Behavioural Finance studies help

A specialised Behavioural Finance course will help learners to:
• Understand the cognitive elements that affect financial decisions
• Identify the psychological factors that contribute to market behaviour and decision errors
• Understand how to adapt the process of investment analysis, portfolio design, and resource allocation using principles from psychology
• Manage financial risks in a better manner
• Learn niche, specialised, and advanced topics in wealth management, financial analysis, risk management, neuro
finance, etc.

Graduates of such specialised courses can also target professional opportunities in a wide range of areas of finance and investments such as analysts, traders, portfolio managers, etc., at pension funds, insurance companies, hedge funds, mutual funds, and family businesses. Perhaps one way to understand the value of studying Behavioural Finance is that it helps us make more rational decisions by acknowledging our inherent irrationality and benefiting from that of others!

Programs Offered by JGU

91̽�� offers an innovative 2-year M.Sc. in Behavioural Finance program and 4-year integrated Ph.D. in Behavioural Finance. This unique and rigorous program combines Jindal School of Banking & Finance’s finance focused and data intensive approach with Jindal Institute of Behavioural Sciences’ spirit of understanding psychological processes and human cognition.

The article is written by Prof. Ram B. Ramachandran, Professor of Practice and Vice Dean, 91̽�� and was originally published in the .

One of the policy announcements which gained a lot of attention was the proposed amendments to the Income-tax Act relating to virtual digital assets. There were a series of amendments concerning virtual digital assets which were proposed. Budget 2022 proposed bringing cryptocurrencies (which were defined as one of the forms of virtual digital assets) and other forms of digital currencies included in the definition under the ambit of taxation. The Budget proposed that income generated by a resident from the transfer of cryptocurrencies and other virtual digital assets be taxed at a rate of 30 per cent. It also proposed a mechanism for tax to be collected at source in transactions involving the transfer of a virtual digital asset.

There has been a lot of debate that such an amendment proposing taxation of income from virtual digital assets amounts to conferring legal status on cryptocurrencies and other forms of virtual digital assets. However, I would like to caution the readers that this is not yet clear from the reading of the Budget since it only mentions the taxation treatment of transactions involving virtual digital assets (cryptocurrencies included).

But perhaps the most consequential announcement with respect to digital currencies was a small amendment proposed to the Reserve Bank of India Act, 1934. Tucked away in the Miscellaneous section of The Finance Bill, 2022 is the proposed amendment to introduce a clause defining a “bank note” as “a bank note issued by the Bank, whether in physical or digital form, under section 22” ^{* $}. Delivering the Budget speech, the Hon’ble Finance Minister announced, “It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23”. The proposed amendment, along with the announcement of the Hon’ble Finance Minister, marks a big step forward by the Central Government and RBI in the adoption of digital currencies and blockchain in India (and consequently for the global economy).

This measured approach taken by the Central Government towards the adoption of digital currencies is a more welcome approach as opposed to the adoption of non-sovereign backed digital currencies as legal tender.

* – the Bank refers to The Reserve Bank of India

$ – section 22 refers to section 22 of the Reserve Bank of India Act, 1934

Written By Prof. (Dr.) Keerti Pendyal, Assistant Professor and Assistant Dean (Outreach & Promotion), Jindal School of Banking & Finance