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Finance is a term for matters regarding the management, creation, and study of money and investments.[1] Specifically, it deals with the questions of how and why an individual, company or government acquires the money needed – called capital in the company context – and how they spend or invest that money. [2] Finance is then often split per the following major categories: corporate finance, personal finance and public finance.[1]

At the same time, and correspondingly, finance is about the overall "system" [1]  – i.e., the financial markets that allow the flow of money, via investments and other financial instruments, between and within these areas; this "flow" is facilitated by the financial services sector. A major focus within finance is thus investment management – called money management for individuals, and asset management for institutions – and finance then includes the associated activities of securities trading and stock broking, investment banking, financial engineering, and risk management.

Given its wide scope, finance is studied in several academic disciplines, and, correspondingly, there are several related professional qualifications that can lead to the field.

Behavioral finance studies how the psychology of investors or managers affects financial decisions and markets when making a decision that can impact either negatively or positively on one of their areas. Behavioral finance has grown over the last few decades to become central and very important to finance.[17]

Behavioral finance includes such topics as:

  1. Empirical studies that demonstrate significant deviations from classical theories.
  2. Models of how psychology affects and impacts trading and prices
  3. Forecasting based on these methods.
  4. Studies of experimental asset markets and the use of models to forecast experiments.

A strand of behavioral finance has been dubbed quantitative behavioral finance, which uses mathematical and statistical methodology to understand behavioral biases in conjunction with valuation.

See also