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A Behavioral Finance Perspective Of The Efficient Market Hypothesis

Author

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  • Camelia Oprean

    (“Lucian Blaga” University of Sibiu Faculty of Economics)

Abstract

Nowadays, 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.

Suggested Citation

  • Camelia Oprean, 2012. "A Behavioral Finance Perspective Of The Efficient Market Hypothesis," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 3(40), pages 159-164.
    • Handle: RePEc:aio:aucsse:v:3:y:2012:i:40:p:159-164
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    References listed on IDEAS

    as
    1. Lo, Andrew W, 1991. "Long-Term Memory in Stock Market Prices," Econometrica, Econometric Society, vol. 59(5), pages 1279-1313, September.
    2. 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.
    3. 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.
    4. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    efficient market hypothesis; informations; behavioral finance; random walk;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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