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

See all articles by Panagiotis Andrikopoulos

Panagiotis Andrikopoulos

Centre for Financial and Corporate Integrity (CFCI), Coventry University

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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)

Centre for Financial and Corporate Integrity (CFCI), Coventry University ( email )

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