engleski

Impact of behavioural finance on the Croatian capital market

This study aims to show the strength of behavioural elements on the Croatian stock market. The hypothesis is that the Croatian stock market is strongly influenced by behavioural elements which bring it high above or under rational levels. To prove the hypothesis an equilibrium model of the stock prices movements and their respective fundamental value is created. Results show that the change in earnings and book value cannot explain the change in price. This short and medium term irrational behaviour could be explained by behavioural theories like price to price feedback theory, overconfidence, representativeness or herding behaviour. On the long term stock prices tend to circle round the fundamental equilibrium with larger deviations from it. The goal of this paper is to prevent future big losses like investors and pension fund holders had during the past years because fund managers and individual investors bought stocks at values that were too high. In this way, this study represents a contribution to the macroeconomic understanding of an ambiguous financial market and its influence not only to the financial sector but also to the real economy.

Behavioural finance; value investing; equilibrium model; stock valuation

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