Advances in Economics, Management and Political Sciences
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Proceedings of the 7th International Conference on Economic Management and Green Development
Series Vol. 31 , 10 November 2023
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The Dynamic Interplay of Market Forces and Human Behavior: A Critical Review of Efficient Market Hypothesis and Behavioral Finance
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Abstract
This literature review offers a comprehensive examination of the Efficient Market Hypothesis (EMH) and Behavioral Finance, as well as their respective implementations in the realm of stock markets. The EMH asserts that financial markets are efficient and that prices accurately reflect all available information. On the other hand, Behavioral Finance recognizes that individuals often make irrational investment decisions based on cognitive biases and emotions. This article explores the interplay between these theories in different applications, including information and communication technology, the stock market’s efficiency and anomalies, and the Adaptive Markets Hypothesis (AMH). This review suggests that while EMH provides a theoretical framework for understanding the efficiency of financial markets, Behavioral Finance offers valuable perspectives on the constraints of logical decision-making and the impact of human behavior on market results. The Adaptive Market Hypothesis provides a third choice balancing the EMH and Behavior Finance. Overall, the article the paper presents a thorough examination of the EMH, Behavioral Finance, and the AMH, along with their respective implementations in stock markets. It highlights the importance of understanding the interplay between these theories to gain a better understanding of financial markets and make informed investment decisions.
Keywords
EMH, behavioral finance, stock market, AMH
References
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Data Availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
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- Volume Title
- Proceedings of the 7th International Conference on Economic Management and Green Development
- ISBN (Print)
- 978-1-83558-083-7
- ISBN (Online)
- 978-1-83558-084-4
- Published Date
- 10 November 2023
- Series
- Advances in Economics, Management and Political Sciences
- ISSN (Print)
- 2754-1169
- ISSN (Online)
- 2754-1177
- DOI
- 10.54254/2754-1169/31/20231498
- Copyright
- 10 November 2023
- Open Access
- This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited