Behavioral Finance Theories Analytical Essay

Behavioral Finance Theories
Explores three behavioral finance theories and the factors that make up the economy.
# 148372 | 1,735 words | 6 sources | APA | 2011 | US

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This paper first explains three behavior based financial theories: the modern portfolio theory, (MPT) that looks at how investors use diversification and price to enhance their portfolios, the general equilibrium theory that looks at how a market economy allocates it resources and the efficient market hypothesis (EMH) that that looks at the discount procedure by which stock prices are established. Next, the paper reviews the procedure based on monetary policy by which the government and banks determine the quantity of money. The paper relates that the unemployment rate, the inflation rate and the overall standard of living are major considerations when evaluating the state of the economy.

From the Paper:

"Only 11 years after the Asian financial crisis of 1997, came the major financial crisis of
2008. It was spurred on by the bankruptcy of Lehman Brothers on September 14, 2008, then spread like wildfire. The United States banking sector fell into a liquidity crisis, which caused world stock markets to fall, financial institutions to collapse, and governments to have had bail out these financial institutions. Economic specialists state that one of the primary reasons for the 2008 financial crisis, is due to several banks subprime lending practices. The vast number of home foreclosures, coupled with the large pool of unsold homes, has driven down home prices in general."

Sample of Sources Used:

  • Oaktree (2005). Finance Theories. Oaktree Research. Retrieved on October 7, 2011 from
  • Spear, S. (2005). General Equilibrium Theory. Retrieved on October 7, 2011, from
  • Klier, Thomas H. "From Tail Fins to Hybrids: How Detroit Lost its Dominance of the U.S. Auto Market." Economic Perspectives 33.2 (2009), 2-17. Web.
  • Heakal, Reem, 2008. Macroeconomic Analysis: Retrieved on October 7, 2011 from:
  • Krumm, Paul, 2007. How Money is Created Retrieved on October 7, 2011 from:

Cite this Analytical Essay:

APA Format

Behavioral Finance Theories (2011, October 13) Retrieved June 05, 2023, from

MLA Format

"Behavioral Finance Theories" 13 October 2011. Web. 05 June. 2023. <>