Review of Behavioural Finance

Behavioural finance studies how financial decision making and in turn financial markets are affected by psychology of the market participants. It deals with individual investors' behaviour incorporating psychology, sociology and conventional finance. When behavioural finance is applied to explain how individuals make investment decisions, then it is the subject matter of behavioural finance micro, and when it is applied to explain market mechanism, then it is called behavioural finance macro. The present study belongs to behavioural finance micro.Behavioural finance is borne out of the need to explain the anomalies which traditional finance could not. Over the past few decades a number of psychological biases have been discovered which affect individual investor's decision making. The presence of these psychological biases challenges the assumption of rationality maintained by almost all the theories of conventional finance.