Efficient Market Hypothesis and Behavioural Finance: Reconciling the Opposites Through Multifractional Processes with Random Exponent

8th Applied Financial Economics (AFE) Conference, pp. 201-510, Samos Island, Greece, 2011

10 Pages Posted: 18 Jul 2011 Last revised: 1 Aug 2011

See all articles by Sergio Bianchi

Sergio Bianchi

University of Cassino

Alexandre Pantanella

University of Cassino

Augusto Pianese

affiliation not provided to SSRN

Date Written: July 19, 2011

Abstract

Real world financial dynamics daily do challenge the credibility of the Efficient Market Hypothesis, to the extent that a strand of skeptical thought, the Behavioral Finance, has been booming. The question whether a model exists able to make consistent the two paradigms is a living matter that financial markets demand to address. The paper deals with a parsimonious stochastic model able to include as special cases both market efficiency and "psychological" phenomena such as the under-reaction and the overreaction, peculiar features of the behavioral finance. The great readability of the model, its capability to agree the controversial results provided by literature on efficient markets and the simplicity of the financial intuition it offers are discussed.

Keywords: efficient market hypothesis, behavioural finance, multifractional processes, pointwise regularity

JEL Classification: C22, C51, C58

Suggested Citation

Bianchi, Sergio and Pantanella, Alexandre and Pianese, Augusto, Efficient Market Hypothesis and Behavioural Finance: Reconciling the Opposites Through Multifractional Processes with Random Exponent (July 19, 2011). 8th Applied Financial Economics (AFE) Conference, pp. 201-510, Samos Island, Greece, 2011, Available at SSRN: https://ssrn.com/abstract=1888205

Sergio Bianchi (Contact Author)

University of Cassino ( email )

Via S. Angelo - Campus Folcara
Dept. of Economics and Law
Cassino, 03043
Italy
+3907762994846 (Phone)
+390776393034 (Fax)

HOME PAGE: http://www.docente.unicas.it/sergio_bianchi

Alexandre Pantanella

University of Cassino ( email )

Via S. Angelo, Loc. Folcara
Cassino, Frosinone 03043
Italy

Augusto Pianese

affiliation not provided to SSRN ( email )

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