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The “Perpetually†Efficient Stock Market Nonsense: The Gaslighting Effects

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  • Michele Anelli
  • Michele Patanè

Abstract

One of the conventional and commonly accepted assumption in the financial world is the Efficient Market Hypothesis (Fama, 1970). However, the intellectual dominance of the efficient-market revolution has more been challenged by economists who stress psychological and behavioral elements of stock-price determination and by econometricians who argue that stock returns are, to a considerable extent, predictable (Malkiel, 2003). “Boom-bust†patterns are the empirical evidence of the efficient market nonsense. We suggest a theoretical linkage between the EMH and the Reflexivity Theory focusing mainly on the psychological profile. We suppose that, during stages of market exuberance/panic, the market pricing produces “gaslighting effects†and that mean-reverting behavior (i.e., contrarianism) is the result of participants’ awareness of psychological deviation from reality. We suspect that investors “benchmarking†plays a primary role on this latter aspect. Outside bubbles episodes, the market pricing is generally efficient and reflects the fundamental value evolution, without producing gaslighting effects.  JEL classification numbers: G10, G11, G14.

Suggested Citation

  • Michele Anelli & Michele Patanè, 2023. "The “Perpetually†Efficient Stock Market Nonsense: The Gaslighting Effects," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 12(2), pages 1-1.
  • Handle: RePEc:spt:fininv:v:12:y:2023:i:2:f:12_2_1
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    References listed on IDEAS

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    1. Luca Bagato & Alessio Gioia & Enrico Mandelli, 2018. "Reflexivity And Interactions In Modern Financial Markets: The Case Of Volatility Indices," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 140(3), pages 231-254.
    2. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
    3. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
    4. repec:pri:cepsud:91malkiel is not listed on IDEAS
    5. 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.
    6. Suleyman Basak & Anna Pavlova, 2013. "Asset Prices and Institutional Investors," American Economic Review, American Economic Association, vol. 103(5), pages 1728-1758, August.
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    More about this item

    Keywords

    Efficient Market Hypothesis (EMH); Reflexivity Theory; Gaslighting Effects.;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • 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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