Assignment requirement
Write a 1,500-word essay on the following topic:
Applying Behavioural Finance to a Recent Market Scenario
Guidelines
The essay should be structured as follows:
Title page
• Your student ID number (do NOT include your name)
• The essay title (same as the assignment requirement)
• The module coordinator’s name
• The name and number of the module
• The academic year
• The word count of your essay
Section 1: Market Scenario
[Indicative maximum word count: 400]
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• Describe one scenario or event in the financial markets since January 2023 (or is still ongoing). Explain the significance of this scenario.
o Note: the GameStop episode is not acceptable, because it is too old. COVID-19 is not an acceptable event either, as it happened in March 2020 and is no longer affecting markets directly. The Russia-Ukraine War is acceptable, but not events that happened before Jan 2023. Examples of acceptable events include the Israel-Gaza war (October 2023-present), the Truss-Kwarteng mini-budget (September 2023) etc.
• The scenario should be significant in the sense that you and/or other financial market observers consider that it has presented (or currently presents) a short- term trading opportunity. Explain why/how it is an opportunity and how this could be captured via a trading strategy (you do not have to elaborate on the strategy in detail).
• The scenario described can involve any financial asset or instrument (or combination of them) – e.g. EUR/USD FX spot, Japanese government bonds, cryptocurrencies, commodities, equity derivatives. However, try to be as specific as possible and focus on one financial asset or instrument. For this essay, it is better to demonstrate expertise in EUR/USD FX spot (rather than currency markets more generally) or Tesla futures prices (rather than NASDAQ100).
• This section requires no academic references but preferably references to news stories (e.g. FT, Bloomberg etc.).
Section 2: Behavioural Factors
[Indicative maximum word count: 700]
• In this section, you have to explain which behaviour factor(s) (e.g. “overestimating predictability”, ”anchoring” etc.) you believe could have caused or played a major role in leading up to this market scenario (i.e. triggered the market to be “out-of- line”), why/how this happened, and why/how this presents itself with a short-term trading opportunity.
• The idea is that you work deductively. The market scenario you have described in Section 1 forms the basis for which behavioural factor(s) you discuss in Section 2. There must be a clear and logical link between Section 1 and Section 2.
• You decide which behavioural factor(s) to discuss, and these can be broadly defined. However, avoid a long list of typical biases in the hope that one or two might make sense. It is better to pick just one and demonstrate your detailed understanding of it.
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• Back up your choice(s) by arguments and academic references (theory, empirical evidence or experiments depending on the behavioural factors chosen). Remember to explain how the relevant literature (which is almost certainly published before 2023) relates to your market scenario (which happened in 2023 or 2024).
Section 3: Ethical and Societal Implications
[Indicative maximum word count: 400]
• In this section, you should discuss and reflect upon:
o the ethical and societal implications of the market scenario or event,
o the ethical and societal implications of the short-term trading opportunity,
and
o the ethical and societal implications of the behavioural factor(s)
as described in Sections 2 and 3.
• Example: suppose you could have studied a scenario from January 2015
o The market scenario or event: Swiss central bank abandons EUR/CHF currency peg. Societal Implications: Significant negative [positive] impact on Swiss [German/French] exporters, significant impact on Swiss interest
rates (and hence savers, mortgage payers etc.)
o The short-term trading opportunity: Buy EUR and sell CHF after the market
has overreacted. Ethical Implications: If the strategy is implemented with the intent to move the market, there could be potential claims of market manipulation.
o The behavioural factor(s): Anchoring, Overreaction. Societal Implications: The sudden move by the Swiss central bank to abandon the peg (less anchoring) could erode trust in the central bank. The overreaction in the EUR/CHF market could have harmful effects on financial market stability.
• Some scenarios/opportunities/behavioural factors are more likely to have societal rather than ethical implications and vice versa.
• This section requires no academic references, but preferably references to news stories (e.g. FT, Bloomberg etc.) or statements and documents by regulators or governmental bodies (e.g. FCA, SEC, Bank of England
Referencing Requirements
All sources should be acknowledged and appropriately cited within your work, following the University’s approved referencing convention for business
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students, APA 7th ed. For further guidance see: https://library.port.ac.uk/referencing.
Referencing is required to give intellectual credit to your source, help your reader recover your source easily and avoid being accused of plagiarism. Students are reminded that the University will not tolerate academic dishonesty in any form. This is cheating.
