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

The ICFAI Journal of Behavioural Finance, Vol. 4, No. 2, pp. 53-70, 2007

Posted: 17 Sep 2010  

Panagiotis Andrikopoulos

Coventry University

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2007

Abstract

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.

Keywords: Behavioural Finance, Market Efficiency, Over-reaction, Under-reaction

JEL Classification: G11, G12, G14

Suggested Citation

Andrikopoulos, Panagiotis, Modern Finance vs. Behavioural Finance: An Overview of Key Concepts and Major Arguments (June 1, 2007). The ICFAI Journal of Behavioural Finance, Vol. 4, No. 2, pp. 53-70, 2007. Available at SSRN: https://ssrn.com/abstract=1678414

Panagiotis Andrikopoulos (Contact Author)

Coventry University ( email )

Priory Street
Coventry, CV1 5FB
United Kingdom
+44(0)247 765 7920 (Phone)

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