IDEAS home Printed from https://ideas.repec.org/a/pts/journl/y2012i2p16-26.html
   My bibliography  Save this article

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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Anastasios KONSTANTINIDIS & Androniki KATARACHIA & George BOROVAS & Maria Eleni VOUTSA, 2012. "From Efficient Market Hypothesis To Behavioural Finance: Can Behavioural Finance Be The New Dominant Model For Investing?," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 11(2), pages 16-26.
    • Handle: RePEc:pts:journl:y:2012:i:2:p:16-26
    as

    Download full text from publisher

    File URL: http://economic.upit.ro/repec/pdf/2012_2_2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 27(1), pages 15-25, 01-02.
    3. 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.
    4. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    5. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
    6. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 797-817.
    7. Mehra, Rajnish (ed.), 2007. "Handbook of the Equity Risk Premium," Elsevier Monographs, Elsevier, edition 1, number 9780444508997.
    8. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
    9. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    10. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    11. repec:pri:cepsud:91malkiel is not listed on IDEAS
    12. Hersh Shefrin, 2001. "Behavioral Corporate Finance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(3), pages 113-126, September.
    13. 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.
    14. Zeelenberg, M. & Pieters, R., 2004. "Consequences of regret aversion in real life : The case of the Dutch postcode lottery," Other publications TiSEM d16cb90a-f96c-4fce-b4c7-4, Tilburg University, School of Economics and Management.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cristi Spulbar & Ramona Birau & Lucian Florin Spulbar, 2021. "A Critical Survey on Efficient Market Hypothesis (EMH), Adaptive Market Hypothesis (AMH) and Fractal Markets Hypothesis (FMH) Considering Their Implication on Stock Markets Behavior," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 1161-1165, December.
    2. Cristi Spulbar & Elena Loredana Minea, 2020. "Critical Conceptual Analysis on Modern Finance Theories," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 1081-1086, December.
    3. Minea Elena Loredana, 2019. "A Critical Theoretical Analysis On The Implications Of Efficient Market Hypothesis (Emh)," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 6, pages 298-303, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Romain Bocher, 2022. "The Intersubjective Markets Hypothesis," Journal of Interdisciplinary Economics, , vol. 34(1), pages 35-50, January.
    2. Imran Yousaf & Shoaib Ali & Syed Zulfiqar Ali Shah, 2018. "Herding behavior in Ramadan and financial crises: the case of the Pakistani stock market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-14, December.
    3. Vicentina Gomes, Liliane & Odálio dos Santos, José & Lana Silva, Cristiane & Ferreira de Souza, Maurício, 2018. "Divulgações de informações e o efeito no retorno de ações da maior empresa de educação listada na B3 (Brasil, Bolsa, Balcão) [Information disclosures and the effect on the return of stocks of the l," MPRA Paper 93123, University Library of Munich, Germany, revised 30 May 2018.
    4. Bennett, Donyetta & Mekelburg, Erik & Williams, T.H., 2023. "BeFi meets DeFi: A behavioral finance approach to decentralized finance asset pricing," Research in International Business and Finance, Elsevier, vol. 65(C).
    5. Daniele SCHILIRÒ, 2013. "Bounded Rationality: Psychology, Economics And The Financial Crises," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 4(1), pages 97-108.
    6. Andrea Antico & Giulio Bottazzi & Daniele Giachini, 2022. "On the evolutionary stability of the sentiment investor," LEM Papers Series 2022/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    7. Concetta Sorropago, 2014. "Behavioral Finance and Agent Based Model: the new evolving discipline of quantitative behavioral finance ?," DIAG Technical Reports 2014-13, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    8. Assia Kamoune & Nafii Ibenrissoul, 2022. "Traditional versus Behavioral Finance Theory [La théorie de la finance traditionnelle contre la théorie de la finance comportementale]," Post-Print hal-03634756, HAL.
    9. Thomas Holtfort, 2019. "From standard to evolutionary finance: a literature survey," Management Review Quarterly, Springer, vol. 69(2), pages 207-232, June.
    10. Hooi Hooi Lean & Fabio Pizzutilo, 2021. "Performances and risk of socially responsible investments across regions during crisis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3556-3568, July.
    11. Nadia Ameli & Paul Drummond & Alexander Bisaro & Michael Grubb & Hugues Chenet, 2020. "Climate finance and disclosure for institutional investors: why transparency is not enough," Climatic Change, Springer, vol. 160(4), pages 565-589, June.
    12. Achim BACKHAUS & Aliya ZHAKANOVA ISIKSAL, 2016. "The Impact of Momentum Factors on Multi Asset Portfolio," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 146-169, December.
    13. Asif, Raheel & Frömmel, Michael, 2022. "Testing Long memory in exchange rates and its implications for the adaptive market hypothesis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 593(C).
    14. Newall, Philip Warren Stirling & Parker, Katie, 2017. "Improved mutual fund investment choice architecture," OSF Preprints qknjt, Center for Open Science.
    15. Dushmanta Kumar Padhi & Neelamadhab Padhy & Akash Kumar Bhoi & Jana Shafi & Muhammad Fazal Ijaz, 2021. "A Fusion Framework for Forecasting Financial Market Direction Using Enhanced Ensemble Models and Technical Indicators," Mathematics, MDPI, vol. 9(21), pages 1-31, October.
    16. Torsten Trimborn, 2018. "A Macroscopic Portfolio Model: From Rational Agents to Bounded Rationality," Papers 1805.11036, arXiv.org, revised Oct 2018.
    17. Kwan, Yum K. & Leung, Charles Ka Yui & Dong, Jinyue, 2015. "Comparing consumption-based asset pricing models: The case of an Asian city," Journal of Housing Economics, Elsevier, vol. 28(C), pages 18-41.
    18. Kin-Boon Tang & Shao-Jye Wong & Shih-Kuei Lin & Szu-Lang Liao, 2020. "Excess volatility and market efficiency in government bond markets: the ASEAN-5 context," Journal of Asset Management, Palgrave Macmillan, vol. 21(2), pages 154-165, March.
    19. Murizah Osman Salleh & Aziz Jaafar & M. Shahid Ebrahim, 2011. "The Inhibition of Usury (Riba An-Nasi'ah) and the Economic Underdevelopment of the Muslim World," Working Papers 11002, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    20. Gabriel Frahm, 2015. "A theoretical foundation of portfolio resampling," Theory and Decision, Springer, vol. 79(1), pages 107-132, July.

    More about this item

    Keywords

    Efficient Market Hypothesis; Behavioural finance; Investor psychology; Investment portfolio;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pts:journl:y:2012:i:2:p:16-26. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alina Hagiu (email available below). General contact details of provider: https://edirc.repec.org/data/fepitro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.