What is the main focus of behavioral finance?

Behavioral finance primarily focuses on understanding the psychological factors that influence investor behavior and the resulting impact on market outcomes. This field recognizes that investors are not always rational and that emotions, cognitive biases, and social factors significantly affect their decision-making processes.

For example, concepts such as overconfidence, herd behavior, and loss aversion are central to this discipline, as they can lead to market anomalies that traditional finance theories might not adequately explain. By studying these psychological influences, behavioral finance aims to provide insights into why markets may not always operate efficiently and how investors can potentially make better decisions.

The other options revolve around different aspects of finance. The analysis of company financial statements relates to fundamental analysis, which focuses on evaluating a company's financial health. Examining market trends over long periods involves technical analysis and is concerned with price movements rather than psychological aspects. The development of quantitative models for stock prediction involves creating mathematical frameworks to forecast stock prices, which, while systematic and data-driven, does not account for the irrational behaviors often observed in real-world markets.