Explanation The reasons why behavioral finance suggests that the efficient market hypothesis may not hold; are as follows: (a) Access to information and availability of information: As per the efficient market hypothesis, markets are informationally efficient. However, this is not the case in the real market scenario. In investment process, the information is available to a limited group of investors not to the general public. (b) Rational behavior: The efficient market hypothesis says that investors are rational in investing their money in the stocks. It means they are concerned with expected utility outcomes and therefore profit maximizing endorsed by rational expectations...

Pearson eText Economics of Money, Banking and Financial Markets, The, Business School Edition -- Instant Access (Pearson+)

5th Edition

ISBN: 9780136879381

Author: Frederic Mishkin

Publisher: PEARSON+

See similar textbooks

Concept explainers

Financial Statements

Financial statements (or financial reports) are the formal records of the financial activities that are undertaken by a firm. They are convenient instruments used for analyzing a company’s financial position and performance. Financial ratios are created …

Question

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Chapter 7, Problem 6LO

To determine

Reasons as per behavioral finance which says that the efficient market hypothesis may not hold.

Concept Introduction:

Efficient Market Hypothesis: It states that it is impossible to beat the market because price of the stocks reflects all the relevant information which may impact its value.

Behavioral Finance: It is a branch of finance which studies the investor market behavior that derives from psychological principles of decision making, to explain why people buy or sell stocks.

Expert Solution & Answer

Chapter 7 Solutions

Pearson eText Economics of Money, Banking and Financial Markets, The, Business School Edition -- Instant Access (Pearson+)

Ch. 7 - Prob. 1LO Ch. 7 - Prob. 2LO Ch. 7 - Prob. 3LO Ch. 7 - Prob. 4LO Ch. 7 - Prob. 5LO Ch. 7 - Prob. 6LO Ch. 7 - Prob. 1Q Ch. 7 - Prob. 2Q Ch. 7 - Prob. 3Q Ch. 7 - Prob. 4Q

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Recommended textbooks for you

ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education