BEHAVIOURAL FINANCE

Behavioural Finance

A Critical Discussion

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Introduction

Does the stock market overreact ? This is a fascinating and interesting question that behavioural finance researchers Werner De Bondt and Richard Thaler analyzed on their study about the overreaction of people investing in the market . But is it really true ? Does the prices of stocks is being influenced by , to put it simply emotions of the investors ? This is an important question to answer since it will help us comprehend that a behaviour or action can or cannot

in any way influence the stock market , and this behavioural principle may apply in many other situations

This study will attempt to answer those questions , and critically discuss the basis of De Bondt and Thaler to come up with their hypothesis . This study will also provide arguments and criticisms on Efficient Market Hypothesis and criticism on Behavioural Finance as well . Evidence on historical share price performance and occurrence of such manic events on the stock market that led to the originations of behavioural finance will also be presented in this study

So does the Stock Market really overreact

Benjamin Graham and David Dodd think so , on their classic book Security Analysis they stated that there are tons of information that needs to be covered and a lot of factors to be considered and that there is no single way to establish a security 's value , no one metric that explains the whole story and no broad consensus on how to assess...