Analysis of Efficient Market Hypothesis and Behavioral Finance

Mehul Mehta

Abstract

The efficient market hypothesis suggests that at any given time in a capital market, the prices of stock reflect all available information. Hypothesis implies that it is impossible to beat the market because the market price always incorporates all the relevant information that may influence the price of a stock. Some researchers, based on the historic evidence, contradict with this hypothesis, and challenge the presence of a perfect rationale behind the hypothesis. Behavioural finance on the other hand combines behavioural and cognitive psychological theory with economics and finance to provide explanations behind the irrational financial decisions investors make. Using these theories, behavioural finance explains stock market anomalies such as severe rises or falls in stock price. Behavioural finance assumes that both information structure and the characteristics of market investors influence investment decision of the individuals. This paper provides a thorough analysis of efficient market hypothesis and behavioural finance by considering the literature and market statistics.

Keywords   Efficient Market Hypothesis, Behavioural Finance, Investor Behaviour, Stock Markets

Journal   IOARP Journal of Business and Management
Volume   Volume 2
Issue   Issue 1, June 2017
Date Published   June 2017
Published in   IOARP Journal of Business and Management
Date Appeared in GDL   15 July 2017

Pages   8
Global Digital Library Number   GDL-IOARP-JBM02-001
Copyright © 2015-2024 IOARP

Journal Homepage on Global Digital Library

Download Paper

1220 Downloads