Inefficient Markets

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ID: 297247
2000
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Abstract
Abstract This book describes an approach, alternative to the theory of efficient markets, to the study of financial markets: behavioural finance. It begins by assessing the efficient market hypothesis, emphasising how some of its foundations are contradicted by psychological and institutional evidence. It then introduces the theory of behavioural finance and devotes the rest of the book to explore its main aspects, concentrating on the role and characteristics of noise traders, arbitrageurs, and investors. Chapters 2 through 4 focus on the limits imposed on arbitrage by factors such as risk aversion or agency problems. Two crucial conclusions are reached. First, plausible theories of arbitrage do not lead to the prediction that markets are efficient—quite the opposite. Second, the recognition that arbitrage is limited, even without specific assumptions about investor sentiment, generates new empirically testable predictions, some of which have been confirmed in the data. Chapters 5 and 6 centre on how investor sentiments are built, emphasising some empirical violations to the idea of efficient markets such as price bubbles. The book concludes suggesting that the theory of behavioural finance is indeed more effective that the efficient market theory in explaining some financial evidence.
Reference Key
openalex_W4249692389 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Andrei Shleifer
Journal Oxford University Press eBooks
Year 2000
DOI
10.1093/0198292279.001.0001
URL
https://doi.org/10.1093/0198292279.001.0001
Keywords Keywords not found

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