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From Efficient Market Theory to Behavioral Finance

The efficient markets theory reached the height of its dominance in academic circles around the 1970s. Faith in this theory was eroded by a succession of discoveries of anomalies, many in the 1980s, and of evidence of excess volatility of returns. Finance literature in this decade and after suggests a more nuanced view of the value of the efficient markets theory, and, starting in the 1990s, a blossoming of research on behavioral finance. Some important developments in the 1990s and recently include feedback theories, models of the interaction of smart money with ordinary investors, and evidence on obstacles to smart money.

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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1385.

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Length: 43 pages
Date of creation: 01 Oct 2002
Date of revision:
Publication status: Published in Journal of Economic Perspectives (Winter 2003), 17(1): 83-104
Handle: RePEc:cwl:cwldpp:1385
Note: CFP 1055
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