Behavioral Finance in JP Morgan

JP Morgan

Mayank Sanghai

JP Morgan

• World’s largest provider of cash management services • Offer clients the perspective of an industry thought leader, product

innovator and global financial solutions provider• Everyday deliver payment, collection, liquidity and investment

management, trade finance, commercial card and information solutions to corporations, financial services institutions, middle market companies, small businesses, governments and municipalities worldwide

• On any given day, $3.2 trillion in U.S. dollar wire transfers pass through systems on behalf of more than 50,000 clients

• With a presence in 39 countries operates most extensive correspondent banking network

Recent awards

• Best Cash Management Specialist, Financial Institutions, The Asset, 2008 • Best Cash Management Specialist, Liquidity Solution, The Asset, 2008 • Best Bank for Liquidity Management in North America, Global Finance, 2008 • Best Bank Award – United States, Global Finance, 2008 • Best Overall Bank for Payments and Collections in North America, Global

Finance, 2008 • J.P. Morgan Named One of "100 Great Supply Chain Partners" - Global

Logistics and Supply Chain Strategies, 2008 • Cash Management Provider of the Year (for Liquidity Management), ICFA

European Award, 2008 • Best Trade Services Provider - Trade & Forfaiting Review, 2008 • Best Liquidity Solution Provider, The Asset, 2007 • Best Regional Specialist, Financial Institutions - The Asset, 2007 • Best Supply Chain Finance Bank - Trade & Forfaiting Review, 2007

Capabilities

• Payables and Receivables • Commercial Card Solutions • Liquidity and Investment Management • E-Billing Services • Global Clearing Services • Euro Clearing • Global Trade and Logistics Solutions • Information Management • E-Commerce Advisory Services • Government Solutions • Healthcare Solutions • Treasury Outsourcing and Private Label Services

JP Morgan

• Asset management• Commercial banking • Investment bank• Private banking• Securities services• Treasury services

Asset Management

• Leading asset manager for institutions, individuals and financial intermediaries, worldwide

• Investment professionals provide strategies that span full spectrum of asset classes including equity, fixed income, cash liquidity, currency, real estate, infrastructure, hedge funds and private equity

• Insight  +  Process  =  Results• Successful investing is driven by insight into opportunities, markets and

portfolio strategies• Reputation has been built on a promise to put client interests ahead of their

own, to generate original insight and to translate that insight into results• Today, advice, insight and intellectual capital drive a growing array of

innovative strategies powered by new ideas, sophisticated analytics and a relentless focus on generating results for each client

BACK

Commercial Banking

• Commercial Banking provides the complete product offering of JPMorgan Chase, including lending, treasury services, investment banking and investment management to corporations, municipalities, financial institutions and not-for-profit entities

• Annual revenues generally ranging from $10 million to $2 billion.• Chase is the number one commercial bank for middle market companies in

markets where they have a geographical presence • Chase clients work with a dedicated client service professional (CSP) who

averages about 20 years service experience• Bankers are deeply rooted in their communities, making decision locally,

with access to the comprehensive resources of their global bank

Commercial Banking

• Asset-based Lending • Institutional Asset Management• Asset & Wealth Management • International Banking• Capital Placements  • Investment Banking • Chase Commercial Online• Investments  • Commercial Real Estate Banking

• Online Solutions • Credit Products• Securities Safekeeping• Employee Stock Ownership Plans

(ESOP)• Subordinated Debt and Equity • Equipment Leasing  • Trade Services. • Foreign Exchange • Treasury Services. • Global and Regional Capabilities  • Worldwide Securities Services

BACK

Investment Bank

• One of the world's premier investment banks• J.P. Morgan serves the needs of clients by offering a world-class platform

coupled with straightforward, intelligent advice • Long-term success due to commitment of always putting clients' interests

first• J.P. Morgan offers M&A advisory, capital markets, prime brokerage,

restructuring, risk and research platform of unrivaled strength• Founded more than 200 years ago and have a proud history of "only first-

class business... in a first-class way"

BACK

Private Banking

• Advisor to over 40% of the individuals on the Forbes Billionaires list* and the Forbes 400 Wealthiest Americans

• Insights results of more than 160 years of experience helping individuals and their families grow, manage and sustain their wealth, to ultimately leave a lasting legacy

• JPMorgan's wealth management solutions are provided through the Private Bank and Private Wealth Management

• Products and services, including fiduciary and custody products and services, are offered through JPMorgan Chase Bank, N.A. and its affiliates.

• Securities are offered by J.P. Morgan Securities Inc., member FINRA, NYSE and SIPC. J.P. Morgan Securities Inc. is an affiliate of JPMorgan Chase Bank, N.A.

• Investment products: Not FDIC insured • No bank guarantee • May lose value

BACK

Worldwide Securities Services

• J.P. Morgan Worldwide Securities Service leading global provider with more than $15 trillion in assets under custody

• J.P. Morgan provides innovative custody, fund accounting and administration and securities services to the world's largest institutional investors, alternative asset managers and debt and equity issuers

• J.P. Morgan WSS leverages its scale and capabilities in more than 90 markets to help clients optimize efficiency, mitigate risk and enhance revenue through a broad range of investor services as well as securities clearance, collateral management and alternative investment services

BACK

Treasury Services

• J.P. Morgan offers reliable and innovative payments and receivables services, liquidity and investment management, and trade and commercial card services

• Presence in 39 countries, treasury employees in 40 U.S. states • Supporting branch network in 17 states • Clients range from small businesses to some of the world's

largest multinational corporations, governments, regional banks and global financial institutions

BACK

Behavioural Finance

Swathi VelisettyF66

Behavioral finance

•Behavioral and cognitive psychological theory •Conventional economics and finance

Behavioral

finance

It provides explanation

s for why people make

irrational financial

decisions.

Anchoring

Mental Accounting

Confirmation & Hindsight Bias

Gambler's Fallacy

Herd Behaviour

Overconfidence

Overreactions & Availability Bias

Prospect Theory

Conventional Financial Theories

•Capital Asset pricing Model (CAPM) •Efficient Market Hypothesis (EMH)•Random Walk Theory

Conventional Financial

Theories

•January Effect•Winner’s Curse•Equity Premium Puzzle

Anomalies

Comparison

Conventional

Established

Long Term

Generality

Common Framework

Homo Economicus

Behaviour

Modern & Evolving

Short Term

Anomalies

Contradictory View

Our Actions

Anchoring

To attach or "anchor" our thoughts to a reference point -

even though it may have no logical relevance to the

decision at hand

Examples

Avoid

Mental Accounting

Tendency to separate money into separate accounts based on subjective criteria, like the

source of the money and intent for each account

Examples

Avoid

Confirmation and Hindsight Bias

Confirmation bias

• A tendency for us to focus on information that confirms some pre-existing thought • E.g. Hot Stock Tip

Hindsight Bias

• Innate need to find order by creating explanations that allow us to believe that events are predictable

• E.g. Technology Bubble

Biases

Dr. Ranjan SharmaF56

Gambler's Fallacy

Erroneous belief that the onset of a certain random

event is less likely to happen following an event or a series

of events

Example

Avoid

Herd Behaviour

Tendency for individuals to mimic the actions

(rational or irrational) of a larger group

Example

Avoid

Overconfidence

An overly optimistic assessment of one's

knowledge or control over a situation

Example

Avoid

Overreactions and Availability Bias

Overreaction Bias

• Overreaction to new information, creating a larger-than-appropriate effect on a security's price

Availability Bias

• Heavily weight decisions toward more recent information, making any new opinion biased toward that latest news

Prospect Theory

Base decisions on perceived gains rather than perceived losses

Example - Disposition Effect

Avoid – Hedonic Framing

JP Morgan : Financials

Atul ZadeF70

Financial Summary of Main Segments Asset & Wealth Management Focusing on Behavioral Financing

Breakdown of Asset & Wealth Management by Business Segment

Breakdown of Asset & Wealth Management by Asset Class

28%

19%

44%

9%

LiquidityFixed Income Equities Alternatives

Total AUM in 2005 : $ 847 Billion

Other Approaches to equity investments are also followed by portfolio managers besides Behavioral Finance

Behavioral Finance22%

Research Model17%

Manager Driven34%

Other26%

JP Morgan Retail Equity Funds organized by strategy for Q3 -2006