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From Efficient Market Hypothesis To Behavioural Finance: Can Behavioural Finance Be The New Dominant Model For Investing?

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  • Anastasios KONSTANTINIDIS

    ()
    (Technological Education Institute of Western Macedonia, Greece)

  • Androniki KATARACHIA

    ()
    (Technological Education Institute of Western Macedonia, Greece)

  • George BOROVAS

    ()
    (University of Western Macedonia, Greece)

  • Maria Eleni VOUTSA

    ()
    (University of Thessaly, Greece)

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    Abstract

    The present paper reviews two fundamental investing paradigms, which have had a substantial impact on the manner investors tend to develop their own strategies. specifically, the study elaborates on efficient market hypothesis (emh), which, despite remaining most prominent and popular until the 1990s, is considered rather controversial and often disputed, and the theory of behavioural finance, which has increasingly been implemented in financial institutions. based on an extensive survey of behavioural finance and emh literature, the study demonstrates, despite any assertions, the inherent irrationality of the theory of efficient market, and discusses the potential reasons for its recent decline, arguing in favor of its replacement or co-existence with behavioural finance. in addition, the study highlights that the theory of behavioural finance, which endorses human behavioral and psychological attitudes, should become the theoretical framework for successful and profitable investing.

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    Bibliographic Info

    Article provided by University of Pitesti in its journal Scientific Bulletin - Economic Sciences.

    Volume (Year): 11 (2012)
    Issue (Month): 2 ()
    Pages: 16-26

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    Handle: RePEc:pts:journl:y:2012:i:2:p:16-26

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    Web page: http://www.economic.upit.ro/
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    Related research

    Keywords: Efficient Market Hypothesis; Behavioural finance; Investor psychology; Investment portfolio;

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    1. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
    2. Richard Thaler, 1985. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 4(3), pages 199-214.
    3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
    4. Zeelenberg, Marcel & Pieters, Rik, 2004. "Consequences of regret aversion in real life: The case of the Dutch postcode lottery," Organizational Behavior and Human Decision Processes, Elsevier, vol. 93(2), pages 155-168, March.
    5. 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.
    6. Hersh Shefrin, 2001. "Behavioral Corporate Finance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(3), pages 113-126.
    7. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 59-82, Winter.
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