From the Efficient Market Hypothesis to Behavioral Finance: How Investors' Psychology Changes the Vision of Financial Markets
14 Pages Posted: 15 Sep 2008
Date Written: November 17, 2007
This paper confronts the main foundations of the neoclassical theory of the capital market and asset pricing with allegations of behavioral finance. Cornerstones of the traditional theory are discussed in the first section. It is followed by a brief presentation of the behavioral approach. Further, the paper discusses consequences of the new view of finance to capital market practitioners - investors, corporate finance, and policy-makers. The paper concludes with final remarks and some thoughts on the future development of the capital market theory.
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