Behavioral Asset Pricing Models

Behavioral Asset Pricing Models are frameworks that explain how psychological factors and biases influence investors' decisions and, ultimately, asset prices. Unlike traditional models that assume investors are rational and focused solely on financial data, behavioral models acknowledge that emotions, social influences, and cognitive errors can lead to mispriced assets. This can create opportunities or risks in the market, as investor behavior might not align with expected outcomes dictated by conventional economic principles. By understanding these behaviors, investors can gain insights into market trends and price movements that traditional models might overlook.