The content of this book has become ever more relevant after the recent 2007–2009 and 2011 financial
crises, one consequence of which was greatly increased scepticism among investment professionals about
the received wisdom drawn from standard finance, modern portfolio theory and its later developments.
The variables measuring the independence and financial expertise of the
board and audit committees, the CEO’s influence on the board, and data on
auditors’ fees were hand collected from the latest proxy statement dated
before the announcement date of a restatement. We measure these variables
before the restatement announcement because firms may change the structure
of their board or audit committee or replace their CEOs after restating their
The size of this market is very roughly estimated to be around
USD 3.8 trillion, already over half of the notional size of the hedge
fund industry (AUM plus leverage), and growing quickly in the
last two years.
Structured products are passive in nature (unlike hedge fund active
styles), and focus on providing returns (for different risk profiles
of clients) with some element of capital guarantee. Constant
proportion portfolio insurance (CPPI) is one of the popular new-
generation techniques. These products have not been tested when
major anomalies in volatility arise.
Behavioral Finance, a study of investor market behavior that derives from psychological principles of decision making, to explain why people buy or sell the stocks they do. The linkage of behavioral cognitive psychology, which studies human decision making, and financial market economics. Behavioral Finance focuses upon how investors interpret and act on information to make informed investment decisions. Investors do not always behave in a rational, predictable and an unbiased manner indicated by the quantitative models.