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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
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    References listed on IDEAS

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    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.
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    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.
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    10. repec:pri:cepsud:91malkiel is not listed on IDEAS
    11. Hersh Shefrin, 2001. "Behavioral Corporate Finance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(3), pages 113-126, September.
    12. 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.
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    Cited by:

    1. Papi Halder & Prof (Dr.) Ram Milan, 2024. "Challenges of Behavioral Finance in Investment Decision Making," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 11(5), pages 1028-1034, May.
    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. 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.
    4. 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.

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    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

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