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 rootage prices already reflect all information that can be derived by examining market trading data such as the history of past prices, trading volume, or short interest.Numerous papers have demonstrated that early identification of new information can provide substantial profits. Insiders who trade on the alkali of privileged information can therefore sword excess returns, violating the strong form of the efficient market hypothesis. Even the earliest studies by Cowles (1933,1944), however, make it fleet that investment professionals do not beat the market. It has already been stated that an efficient market is one where the prices of securities fully reflect all available information, but therefore what are the sufficient conditions for capital market efficiency? In an idealized world, such conditions would beThe debate about market efficiency has resulted in thousand s of falsifiable 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 hard-fought to predict prices. Moreover, the random walk theory indicates that price movements will not follow any trends and so by knowing 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 seem 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 spawn 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 returns using a