Behavioral Finance: Psychology of Investors and Market Impact - Essay Sample

Introduction

Behavioral finance is the psychological study of investors' behaviors, especially due to stock price change. It engages trending impact in the market. This helps investors to be irrational when engaging in marketing. According to behavioral finance, market and investor much not be perfectly rational when dealing with factor affecting pricing. Therefore, investors are not required to exercise self-control to regulate the kind of activities they are engaging. Technology development has critically changed how investors engage in the market. Normally, financial technology has been a critical aspect which competes effectively with traditional financial. Current industries rely on technology to improve their financial system. Through financial technology, investors are able to establish setups which try to improve financial management to determine the market trend and overcome some unnecessary issues which could lead to a loss. Most researchers use behavioral finance to explain people's behavior in the market. The essay examines the future behavioral-finance in light of emerging financial technology.

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For many years, traditional financial have been encouraging its investors who are engaging in marketing to focus on rational subjects. In this case, they assume that if new information emerges in the market, individuals will be forced to change their preference and perception toward a certain particular product (Audretsch, Lehmann, Paleari, & Vismara, 2016). As such, consumers will be forced to make a new decision based on their personal advantages. Due to the impact of behavioral finance, finance technology will create a good communication channel when dealing with customers. In marketing, communication is an essential factor which affects the demand and supply of products. Finance technology introduces effective communication techniques such as social media. For instance, through effective communication, clients can easily request for price bargain. This action will effectively change how an investor or company behaves toward a certain product. Additionally, communication influence the kind of products an investor may introduce in a market (Lusardi, Michaud, & Mitchell, 2017). Additionally, clear communication plays a vital role in enhancing investors' goal. Hence, a company may tend to introduce more products based on goals achievement. A large number of companies perceive this technique as an effective way to boost the international market. Customers can order products even if they are overseas.

Emerging financial technology has a great influence on management development. Through this new system, organizations develop effective financial management (Audretsch et al., 2016). This action helps to understand the kind of products and services to introduce. In an organization, management is a key factor which influences how investors participate. Effective management motivates more investor to venture in a certain business as they are aware that the probability of their financial losses is low. As such, effective management will assist the organization to overcome some challenges and portholes which brings a lot of financial losses (Lusardi, Michaud, & Mitchell, 2017). Effective financial management triggers an organization to engage in various activities which shape their growth rate. Furthermore, through effective financial management, all stakeholders can effectively participate in the decision and introduction of more strategies. Management will ensure members effectively utilize all resources to boost its growth. Moreover, companies rely on this approach to overcome their competitors in various environment.

In financial control, transparency is a critical approach which controls how investors invest in certain products (Frydman & Camerer, 2016). Financial technology creates a system which investors use to acquire information concerning a certain product. Therefore, through this emerging approach, it is easy for an investor to review various products since most companies tend to publish their financial performance to attract more investors. Behavioral financial among investors are easily influenced by financial transparency. Hence, companies are required to develop effective approaches which show all information regarding their performance. Lack of transparency is a critical technique which reduces the growth rate (Audretsch et al., 2016). Normally, transparency in an organization brings behavioral mentalities which influence investors and other stakeholders to effectively participate in management techniques such as decision making. This management techniques assist members to effectively understand how to engaging in marketing. Since finance technology influence the creation of transparency, it is easier to manage marketing behavior in an organization.

In organizations, finance technology plays a vital role in the investment decision. In this case, financial technology affects the investment cost since it directs the kind of materials to incorporate in production. Investment cost plays affect profitability as it affects the quality and quantity of products being produced (Lusardi, Michaud, & Mitchell, 2017). When an organization decides to change their technology approaches, the key aim is to solve some of the existing challenges. Typically, technology development plays a vital influence on problem-solving. For instance, through technology approaches, it is easier to increase production in case the demand rate is too high. Additionally, financial technology tries to break complex setting which are the selective values that guide investors when engaging in a certain product. In long term investment, financial technology regulates the amount of cash an investor engages to ensure they operate within the economic threshold.

Current market value is highly influenced by market value. In most cases, market values tend to change based on market demand. Through financial technology, it is easier for an investor to review and investigate the market value (Frydman & Camerer, 2016). This is effective done by examining the trading session due to the difference in supply and demand. For instance, through a technology approach, it is easier for an investor to understand whether it is possible to buy shares at a particular time. Additionally, through market value, an investor may decide to sell instead of buying. This occurs when the selling profit is high as compared to the buying rate. Due to this approach, investors are able to overcome some financial challenges which are caused by lack of enough information about market value. Additionally, market values regulate the price limit for both buying and selling of stocks in an organization (Audretsch et al., 2016). As such, financial technology helps investors to secure market gains and stimulate industrial growth. Therefore, it becomes so easier for an investor their financial behavior due to the influence of market value.

Financial technology has become an essential tool which investors are using to determine their profiting level (Frydman & Camerer, 2016). Normally, financial technology helps investors to understand when stock is richly priced to ensure they get the maximum price. Most organizations use this approach to determine the price rate to ensure they make maximum profit from a product. Profit rate plays a vital role in increasing the growth rate within an organization. Through financial technology, organizations keep a record which helps to understand the market price to determine the best-selling time to maximize profit. For instance, some organization deploy ValueEngine data to provide the price trend to determine when profit is at maximum. Therefore, profiting affects how the investor engages in trading.

Due to the demand and supply rate, the market price changes continuously. Through financial technology, investors develop a system which helps them to utilize all opportunities to boost their income rate. As such, the approach helps investors to locate all points which prevent products from being under value which may lead to the massive loss (Audretsch et al., 2016). Therefore, financial technology helps an organization to create a system which allows them to utilize all opportunity to which may earn them more profit. In areas where there is a financial crisis, it becomes easier for an investor to understand when the best opportunity to sell the products.

Price-earnings ratio is a critical factor which shapes investors behavior before engaging in the market. Through the approach, an investor is able to follow all value of stocks before venturing in any business. Additionally, it becomes easier for a person to avoid investing in companies which are not performing effectively. Hence, a person can get the true value of stocks and understand the best market to venture to avoid incurring a loss (Frydman & Camerer, 2016). Through financial technology, it is possible to measure the value at which an investor is will to pay for a certain product. As such, it possible to compare the product price between various organizations which are dealing with the same products. To determine the price to earnings ratio, a person is required to divide the stock market value with an average earning per share within a certain period.

Conclusion

In conclusion, future behavioral finance has a great impact on emerging financial technology. The approach has enhanced the management practices which impact organization operations. Transparency motive investor to engage in market value so as to utilize all opportunity to boost the profit rate. Price to earnings ratio is another behavioral factor which is influences the emerging financial technology.

References

Audretsch, D. B., Lehmann, E. E., Paleari, S., & Vismara, S. (2016). Entrepreneurial finance and technology transfer. The Journal of Technology Transfer, 41(1), 1-9.

Frydman, C., & Camerer, C. F. (2016). The psychology and neuroscience of financial decision making. Trends in cognitive sciences, 20(9), 661-675.

Lusardi, A., Michaud, P. C., & Mitchell, O. S. (2017). Optimal financial knowledge and wealth inequality. Journal of Political Economy, 125(2), 431-477.