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The effective market hypothesis has been the core proposition of the financial industry for the past three decades. It pointed out that the price of securities in the financial market must be equal to the basic value, because all investors are rational, or because arbitrage eliminates pricing anomalies. This book describes another method of studying financial markets: behavioral finance. This method begins with the observation that the assumptions of investor rationality and perfect arbitrage are very different from the psychological and institutional evidence. In the actual financial market, less rational investors and arbitrageurs trade, and arbitrage resources are subject to risk aversion, short-sightedness, and agency problems. This book introduces the models of these markets. These models more accurately explain the available financial data than the efficient market hypothesis and generate new forecasts of the price of the securities. By summarizing and expanding research on behavioral finance, this book provides new theoretical and empirical foundations for realistic market economic analysis.
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Orignal From: Inefficient Market: An Introduction to Behavioral Finance
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