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Theoretical framework and practical models of behavioral extrapolation

Vol. 12, Iss. 2, JUNE 2019

Received: 14 December 2018

Received in revised form: 22 January 2019

Accepted: 28 January 2019

Available online: 30 May 2019

Subject Heading: FINANCIAL INSTRUMENTS

JEL Classification: C9, C92, D81, D90, G02

Pages: 204–218

https://doi.org/10.24891/fa.12.2.204

Bogatyrev S.Yu. Financial University under Government of Russian Federation, Moscow, Russian Federation
sbogatyrev@fa.ru

https://orcid.org/0000-0002-6080-5869

Subject The article addresses behavers, i.e. persons taking financial decisions on the basis of mechanisms and principles underlying behavioral analytical tools; behavioral finance tools and extrapolation as a key element in behavioral model building.
Objectives The aim is to develop and describe the theoretical basis of extrapolation mechanisms and their realization in behavioral models.
Methods I employ methods of analysis and synthesis, reveal the degree of formalization of the problem and apply logical methods of research.
Results The developed theoretical framework for extrapolation principles in behavioral finance is illustrated by numerous behavioral models. I specify principles and driving factors of extrapolation in taking financial decisions, offer a mechanism describing the effect of these driving factors. I tested the model on the factual material of foreign markets. The findings may help analyze investors' behavior in the stock market, in corporate finances in conditions of instability and crisis.
Conclusions Currently, behavioral analytical tools based on extrapolation have been formed and are being applied. Owing to these tools, it is possible to make highly accurate forecasts and describe phenomena in financial markets. To develop such models and integrate them with technical analysis is a promising area of new research.

Keywords: behavioral finance, behavioral analysis, behavioral valuation model, emotional finance, heuristics

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