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Rational and irrational approaches to investors’ transactions in financial markets

Author

Listed:
  • Viktor P. Ivanitsky

    (Ural State University of Economics, Ekaterinburg, Russia)

  • Vasily A. Tatyannikov

    (Ural State University of Economics, Ekaterinburg, Russia)

Abstract

Under high financial market volatility, the balance in contradictions between rational and irrational approaches to investors’ transactions shifts towards the domination of the behavioral component. However, further instability of financial markets casts doubt on the fairness of asset pricing as one of the main target indicators of the market economy. The article deals with the research of two completely opposite theories of investors’ behaviour in financial and commodity markets. The authors connect rational investors’ behaviour with the basic theories of quantitative finance, and their irrational actions with the varieties of behavioural finance. The methodological foundation of the research includes classical theories of asset valuation and modern theories of finance with the dominant role of psychology in the monetary model of the world economy development. The research methods encompass analysis and comparison of the market uncertainty and market efficiency levels, detailing and summarising the negative impact of cognitive psychology on pricing in the context of existing information asymmetry in financial markets. The findings are of theoretical and practical importance and can be used both to develop and implement measures in the field of financial (stock) market regulation, and examine the causes of poor engagement of the Russian population in the investment process.

Suggested Citation

  • Viktor P. Ivanitsky & Vasily A. Tatyannikov, 2019. "Rational and irrational approaches to investors’ transactions in financial markets," Journal of New Economy, Ural State University of Economics, vol. 20(5), pages 61-74, December.
    • Handle: RePEc:url:izvest:v:20:y:2019:i:5:p:61-74
    DOI: 10.29141/2073-1019-2019-20-5-4
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    References listed on IDEAS

    as
    1. Viktor Ivanitskiy & Vasily Tatyannikov, 2018. "Information Asymmetry in Financial Markets: Challenges and Threats," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(4), pages 1156-1167.
    2. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    3. Richard H. Thaler, 2018. "From Cashews to Nudges: The Evolution of Behavioral Economics," American Economic Review, American Economic Association, vol. 108(6), pages 1265-1287, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    theories of asset assessment; efficient-market hypothesis; rational behaviour of investors; market uncertainty; economic agent; information asymmetry.;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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