Abstract

https://ssrn.com/abstract=204330
 
 

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Competing Theories of Financial Anomalies


Alon Brav


Duke University - Fuqua School of Business

J.B. Heaton


Bartlit Beck Herman Palenchar & Scott LLP

April 2001

Eleventh Annual Utah Winter Conference

Abstract:     
We compare two competing theories of financial anomalies: (1) behavioral theories built on investor irrationality; and (2) rational structural uncertainty theories built on incomplete information about the structure of the economic environment. We find that although the theories relax opposite assumptions of the rational expectations ideal, their mathematical and predictive similarities make them difficult to distinguish. Interestingly, even if irrationality generates financial anomalies, their disappearance still may hinge on rational learning ? that is, on the ability of rational arbitrageurs and their investors to reject competing rational explanations for observed price patterns.

Number of Pages in PDF File: 32

JEL Classification: G12, G14, G18


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Date posted: January 25, 2000  

Suggested Citation

Brav, Alon and Heaton, J.B., Competing Theories of Financial Anomalies (April 2001). Eleventh Annual Utah Winter Conference. Available at SSRN: https://ssrn.com/abstract=204330 or http://dx.doi.org/10.2139/ssrn.204330

Contact Information

Alon Brav (Contact Author)
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-2908 (Phone)
919-684-2818 (Fax)

J.B. Heaton
Bartlit Beck Herman Palenchar & Scott LLP ( email )
Courthouse Place
54 West Hubbard Street
Chicago, IL 60610
United States
312-494-4425 (Phone)
312-494-4440 (Fax)
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