PDF Ebook Efficient Markets Hypothesis and Behavioral Finance: A Kuhnian Review
The Efficient Markets Hypothesis (EMH) is one of the most controversial and well-studied propositions in modern finance and even in all of the social sciences. It is impressively simple to state, has far-reaching consequences for academic pursuit and business practice, and yet is surprisingly resilient to empirical proof or refutation.
The EMH reached its highest point of dominance during the 1970s, with the publication of Fama (1970) being its milestone. However, similar to many other financial theories, the EMH was shocked when applied to interpret real investors and financial markets. Evidence that markets are not so efficient began to accumulate and anomalies began to emerge systematically.
When the EMH is widely supposed to encounter difficulties, a non traditional interpretation of investor behavior and financial markets behavioral finance emerged to be a seemingly successful alternative. Debates carry out on whether behavioral finance can replace the EMH and neoclassical finance as a dominant paradigm. Even after three decades of research and literally thousands of journal articles, financial economists have not yet reached a consensus about whether markets-particularly financial markets- are efficient or not.
This survey is to review the most important literature1 relevant to the historical revolution of the EMH, behavioral finance and their interactions, from a Kuhnian perspective. This perspective was introduced in Kuhn’s classic The Structure of Scientific Revolutions—and has been practiced by academicians from a wide range of disciplines.
Financial economists rarely rely on philosophical concepts, but Kuhn’s theory is an exception. That is because Kuhn’s book offers profound insights into the evolution of scientific disciplines, assisting us in better understanding past and present trends in the finance discipline. I will demonstrate in this survey that a Kuhnian interpretation offers a new and interesting perspective to re-examine the historical evolution of financial theory, and is also suggestive in predicting future trends of financial theory including the EMH and behavioral finance.
Download
PDF Ebook Efficient Markets Hypothesis and Behavioral Finance: A Kuhnian Review
Posted in :
