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Modern Finance vs. Behavioural Finance: An Overview of Key Concepts and Major Arguments

Panagiotis Andrikopoulos

University of Coventry

June 2005

Modern Finance has dominated the area of financial economics for at least four decades. Based on a set of strong but highly unrealistic assumptions its advocates have produced a range of very influential theories and models. Nonetheless, in the last two decades a new academic school of thought has emerged that refutes the key assumption of a homo economicus; an assumption that represents the cornerstone for the development of the theory of efficient markets. The first empirical evidence against efficient markets in the mid-eighties signalled the beginning of a fierce debate between these two schools of thought. This paper gives an overview of the key arguments of these two distinctive academic doctrines.

Number of Pages in PDF File: 22

Keywords: Behavioural Finance, Modern Finance, Efficient Market Hypothesis, Overreaction Hypothesis, Underreaction Hypothesis, Investors' Overconfidence

JEL Classification: B13, G14

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Date posted: June 20, 2005  

Suggested Citation

Andrikopoulos, Panagiotis, Modern Finance vs. Behavioural Finance: An Overview of Key Concepts and Major Arguments (June 2005). Available at SSRN: http://ssrn.com/abstract=746204 or http://dx.doi.org/10.2139/ssrn.746204

Contact Information

Panagiotis Andrikopoulos (Contact Author)
University of Coventry ( email )
Priory Street
Coventry, CV1 5FB
United Kingdom
+44(0)247 765 7920 (Phone)
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References:  69
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