Efficient capital markets and the importance of behavioral finance

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7 word format

document in English

finance

presentation

published 05/08/2008

review : Completed

level : General public

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Summary

Efficient capital markets allow to consumers and companies to invest savings, borrow, and manage risk in the most effective way. Capital markets bring together companies, that seek to raise capital to invest in future performance and investors, who seek for a profitable return on their investments.
Investors trade for both cognitive and emotional reasons. Behavioral Finance examines the psychological traits of investors, investigates the factors that contribute to capital market efficiency and tries to explain portfolio allocations that are inconsistent with the paradigm of the expected utility of wealth.

Abstract.
Introduction.
The Efficient Market Hypothesis (EMH).
1. Efficient Market Sub-Hypotheses.
2. The importance of Informational Efficiency.
The importance of Behavioral Finance.
1. Behavioral Finance and the utility function.
2. Behavioral Finance and the fusion investing.
3. Behavioral Finance and the arbitrage limitations.
Implications of Efficient Capital Markets.
1. Efficient Capital Markets and technical analysis.
2. Efficient Capital Markets and fundamental analysis.
Conclusions.