Rational managers, irrational investors: When should companies issue new equity?

Topics for assignment in behavioural finance (NBS8200)

Please critically evaluate the theoretical and/or empirical findings in the literature on behavioural finance on one of the following question:

Queston：Rational managers, irrational investors: When should companies issue new equity?
Answer your chosen question in a maximum of 1,500 words drawing in detail on 2 or 3 journal articles on the topic. These 2 or 3 articles should be selected by yourself, based on a search of the library database, and preferably should not be the ones introduced in lectures. The core of your assignment should be related to these 2 or 3 articles, but you should also demonstrate knowledge of the topics covered in the lectures and seminars and a broader context in your assignment.

It is absolutely essential that you to consider the following when discussing your topic as failing to do so might mean that you don’t pass the assignment:
• identify and discuss the ‘gap’ in traditional finance theory and how behavioural finance theory aims to address this;
• report on and then compare the journal articles you select in terms of their findings – e.g., do they all conclude the same thing, and if not, why not? For example, how do any empirical findings relate to the predictions of the theoretical model? What about model assumptions – what are these based upon, and how justified do these appear to be? How do the models perform in terms of explaining reality and the observed “puzzles” traditional finance theory struggles with?
• describe how the behavioural explanations outperform the traditional finance theory, and discuss their potential weaknesses;
• apply the knowledge you’ve obtained in lectures to supplement what you discuss in relation to the journal articles;
• ensure referencing is to a defined standard throughout;
• as this is a module in finance, ensure your focus is on the financial side of the theory and findings, and do not allow psychological aspects to dominate your discussion.

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