INEFFICIENT MARKETS AN INTRODUCTION TO BEHAVIORAL FINANCE.ANDREI SHLEIFER PDF

Andrei Shleifer. The efficient markets hypothesis has been the central proposition in finance for nearly thirty years. It states that securities prices in financial markets must equal fundamental values, either because all investors are rational or because arbitrage eliminates pricing anomalies. This book describes an alternative approach to the study of financial markets: behavioral finance. This approach starts with an observation that the assumptions of investor rationality and perfect arbitrage are overwhelmingly contradicted by both psychological and institutional evidence. In actual financial markets, less than fully rational investors trade against arbitrageurs whose resources are limited by risk aversion, short horizons, and agency problems.

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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 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.

Keywords: arbitrage , behavioural finance , efficient markets , finance , financial markets , investor sentiment , noise trader. Forgot password? Don't have an account?

All Rights Reserved. OSO version 0. University Press Scholarship Online. Sign in. Not registered? Sign up. Publications Pages Publications Pages. Users without a subscription are not able to see the full content. Inefficient Markets: An Introduction to Behavioral Finance Andrei Shleifer Abstract This book describes an approach, alternative to the theory of efficient markets, to the study of financial markets: behavioural finance.

More This book describes an approach, alternative to the theory of efficient markets, to the study of financial markets: behavioural finance. Authors Affiliations are at time of print publication. Print Email Share This. Show Summary Details. Subscriber Login Email Address. Password Please enter your Password. Library Card Please enter your library card number. View: no detail some detail full detail. End Matter Bibliography Index. All rights reserved. Powered by: Safari Books Online.

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Inefficient Markets: An Introduction to Behavioral Finance

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 Chapters 2 through 4 focus on the limits imposed on arbitrage by factors such as risk aversion or agency problems.

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Andrei Shleifer. The efficient markets hypothesis has been the central proposition in finance for nearly thirty years. It states that securities prices in financial markets must equal fundamental values, either because all investors are rational or because arbitrage eliminates pricing anomalies. This book describes an alternative approach to the study of financial markets: behavioral finance.

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It states that securities prices in financial markets must equal fundamental values, either because all investors are rational or because arbitrage eliminates pricing anomalies. This book describes an alternative approach to the study of financial markets: behavioral finance. This approach starts with an observation that the assumptions of investor rationality and perfect arbitrage are overwhelmingly contradicted by both psychological and institutional evidence. In actual financial markets, less than fully rational investors trade against arbitrageurs whose resources are limited by risk aversion, short horizons, and agency problems. The book presents and empirically evaluates models of such inefficient markets. Behavioral finance models both explain the available financial data better than does the efficient markets hypothesis and generate new empirical predictions.

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