each have our own individual preferences, strengths and weaknesses when
it comes to most things in life, so why not also with respect to risk?
Behavioural Finance is a field of research that respects human
Emotions at the Trading floors
It seeks ways to describe this behaviour, the impact it has on the
market, and how to better support investors in fulfilling their
financial goals and avoid biases.
AGFIF we believe that the insights of Behavioural Finance help us
understand and service you better. To this end we are proud to offer
the BhFS risk profiling tool developed out of the Swiss Banking
Institute at the University of Zurich. The institute is directed by
Prof. Dr. Thorsten Hens, a BhFS partner and Member of AGFIF's Advisory
Behavioural Finance –
discovered by a motivation to find a complete risk measure Benjamin
Graham, the father of fundamentals-based equity analysis, declared
eighty years ago that investors are their own worst enemy. He was only
partially right. Investors do indeed make psychological mistakes, but
good risk management can help avoid most of them. The problem remains,
however, that risk management often concentrates on risk measures that
are unsuited to investors. So how can risk be measured? Behavioral
finance adds to the value of traditional mean-variance analysis by
taking theories and assumptions on how investors behave towards risk
and tests them.
Markowitz first expounded his modern portfolio theory – based on
mean-variance analysis – in 1952. However, mean-variance analysis is
unsuitable for many private investors. Variance is defined as how far a
value deviates from the mean, regardless of whether this deviation is
up or down.
Behavioural Finance shows
that investors are loss averse, and that losses are felt more strongly
than gains. A loss is a short fall behind a personal reference point
that itself is a crucial aspect of the investor’s risk preferences.
Behavioural finance was founded by two psychologists, Daniel Kahneman
and Amos Tversky. Daniel Kahneman received the Nobel Prize in 2002 for
developing Prospect Theory, the foundation of Behavioural Finance. Risk
is how we perceive and experience it, not an abstract theoretical
Video: Watch video files about prospect theory and other key ideas in behavioral finance. Interrview with Daniel Kahneman of Princeton University, October 19, 2009
risk needs to be measured on an individual basis, because we perceive
and experience risk differently. That is to say, we each have a unique
optimal portfolio – this is contrary to the popular idea that there is
a universal “best investment strategy”.
investor has a different perception of their investments, and suffers
from different biases. It is no wonder that each investor has a
different optimal portfolio.” – Prof. Dr. Thorsten Hens
clients are our best advertising. Please contact us if you wish to
receive a referrals, and we will be happy to provide them.
Behavioural Finance for Private Banking
by Thorsten Hens and Kremena Bachmann
“AGFIF is the best wealth management firm I have ever worked with.
I was impressed by their unique method of giving me the best portfolio“
– Client testimonial
Behavioural Finance Solutions GmbH
client risk profiler we use is an innovation of Behavioural Finance
Solutions GmbH, a spin-off from the Swiss Banking Institute at the
University of Zurich. Behavioural Finance offers the best theory to
explain the connection between the investor to the portfolio,
evaluating risk preferences and biases. Risk is how you perceive and
experience it, not an abstract theoretical ideal. With the risk
profiler, we can see the market through your eyes, how you experience
and perceive it. Your definition of gains, losses, and risks are
calculated with the BhFS model reflecting 50 years of advances in
For more information on BhFS or behavioural finance