Why do academic researchers avoid behavioral finance?

Why do academic researchers avoid behavioral finance?

March 11, 2016 Behavioral Finance
Print Friendly
(Last Updated On: March 11, 2016)

Charlie Munger, Warren Buffett’s right-hand-man and Vice Chairman of Berkshire Hathaway, has said the following regarding behavioral economics:

How could economics not be behavioral? If it isn’t behavioral, what the hell is it?

Apparently, academic researchers don’t agree. A crew of PhD students at HKUST summarize the articles being published in top-tier economic and finance publications over the past 5 years.

Perhaps not surprisingly, the academic literature (as proxied via the Journal of Finance) overwhelming sticks to their guns when it comes to understanding “agents” in the economy. Papers focused on “rational” finance  outnumber “behavioral” finance 4 to 1. Or as Dick Thaler might say, “The econs are winning.”

economan behavioral finance

The good news is we help fill the void and try and highlight interesting papers focused on behavioral finance. Our treatise on the subject is here.

The HKUST PhD students also find a bunch of interesting things that summarize the status of academic finance research.

Here are a summary of the points highlighted in the paper:

  1. The journals are not as US-centric as commonly believed in Asia.
  2. The number of authors per article is trending up, with the mean being about 2.6.
  3. Classification is very difficult. There are more papers published which are not only intra-discipline but also inter-disciplinary. Macro-banking-finance is the hottest inter-disciplinary topic.
  4. The ratio between theory to empirical is highest in RFS (about 1:2) and lowest in JFQA (about 1:6). No trends are discernible in asset pricing, but less theory papers are being published in corporate finance.
  5. In corporate finance, the dominance of the old chestnuts – capital structure and corporate governance – is trending down. M&A is popular. Links between markets, banks and firms is a hot new area.
  6. In asset pricing, identification of new sources of risk, and pricing of non-equity assets are hot new areas.
  7. In investments, hedge funds, venture capital and private equity are hot.
  8. High frequency trading has resuscitated the market microstructure area.
  9. Niche areas like household finance, culture and finance, politics and finance, labor and finance, media and finance, networks and finance, are not niche anymore.
  10. Amongst finance journals, JF is No 1 followed by the RFS.
  11. Top non-finance journals like the AER, JPE, QJE and Management Science publish many finance papers. With the notable exception of QJE, these journals now have lower impact factors than the top 3 finance journals.


Note: This site provides no information on our value investing ETFs or our momentum investing ETFs. Please refer to this site.

Join thousands of other readers and subscribe to our blog.

Please remember that past performance is not an indicator of future results. Please read our full disclaimer. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. This material has been provided to you solely for information and educational purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and Alpha Architect to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Alpha Architect.

About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray received a PhD, and was a finance professor at Drexel University. Dr. Gray’s interest in entrepreneurship and behavioral finance led him to found Alpha Architect. Dr. Gray has published three books: EMBEDDED: A Marine Corps Adviser Inside the Iraqi Army, QUANTITATIVE VALUE: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors, and DIY FINANCIAL ADVISOR: A Simple Solution to Build and Protect Your Wealth. His numerous published works has been highlighted on CBNC, CNN, NPR, Motley Fool, WSJ Market Watch, CFA Institute, Institutional Investor, and CBS News. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.