A Behavioral Finance Perspective Of The Efficient Market Hypothesis
AbstractNowadays, a central theme in the finance and economic theory is market efficiency. After several decades of research, economists have not yet reached a consensus about the existence of efficient financial markets in terms of information. In the problematized approaches regarding the treated subject, one can find the inquiries on the validity of assumptions underlying the informational efficiency theory of the financial market. The emerging discipline of behavioral economics and finance has challenged the EMH hypothesis, arguing that markets are not rational, but are driven by fear and greed instead. The paper proposes a critical analysis, based on consistency criteria, regarding the controversed current state of the informational efficiency theory of the capital market. In this sense, the critical approach is one that shows the weaknesses, the vulnerable aspects that characterize the classical form of EMH theory. Also, the paper highlights the most signicant criticisms levelled against EMH by psychologists and behavioral economists.
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Bibliographic InfoArticle provided by University of Craiova, Faculty of Economics and Business Administration in its journal Annals of Computational Economics.
Volume (Year): 3 (2012)
Issue (Month): 40 ()
efficient market hypothesis; informations; behavioral finance; random walk;
Find related papers by JEL classification:
- G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sanford J Grossman & Joseph E Stiglitz, 1997.
"On the Impossibility of Informationally Efficient Markets,"
Levine's Working Paper Archive
1908, David K. Levine.
- Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
- Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272.
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