An examination of the efficacy of Behavioral Finance Essay

An examination of the efficacy of behavioral Finance - Essay Example383)-The weak form hypothesis asserts that stock prices already reflect both selective information that can be derived by examining marketplace art data such as the news report of past prices, trading volume, or short interest.Numerous papers have demonstrated that early appointment of new information can provide substantial profits. Insiders who trade on the basis of privileged information can in that locationfore make excess returns, violating the strong form of the effective market hypothesis. Even the soonest studies by Cowles (1933,1944), however, make it clear that investment professionals do not beat the market. It has already been postulated that an in effect(p) market is one where the prices of securities fully reflect all available information, but then what are the adapted conditions for capital market efficiency? In an idealized world, such conditions would beThe debate about market efficiency has resulted in thousands of empirical studies and literature attempting to determine whether particular markets are in fact efficient, and if so to what degree. In fact, the majority of studies and researches of technical theories have gone to the result that it is difficult to predict prices. Moreover, the ergodic walk theory indicates that price movements will not follow any trends and so by discriminating the past price movements its not possible to predict the future price movements. All these state that markets are in fact efficient. However, researchers have also exposed many stock market anomalies that search to be inconsistent with the efficient market hypothesis.Trading strategies seem to be widespread among fund managers and there is little evidence that they would generate excess returns in practice (Malkiel, 2003). Evidence proof that the use of trading strategies might be closely related to behavioural anomalies. It is impossible to consistently make abnormal retur ns use a