Toward a General Model of Financial Markets

42 Pages Posted: 3 May 2016 Last revised: 30 Oct 2018

See all articles by Nihad Aliyev

Nihad Aliyev

University of Technology Sydney (UTS) - School of Finance and Economics

Xuezhong He

University of Technology Sydney (UTS) - Finance Discipline Group, Business School; Financial Research Network (FIRN)

Date Written: September 1, 2018

Abstract

This paper discusses the efficient market hypothesis and behavioral finance under a general framework using the literature of decision theories and information sciences. The focus is centered on the broad de nition of subjective rationality, the imprecision, and reliability of information. The main thesis advanced is that the roots of behavioral anomalies are the imprecision and reliability of information. We show that the proposed general framework is useful to understand economic/financial puzzles consistently. We exemplify insurance and gambling, and equity premium puzzles for this purpose. We also present a possible fuzzy representation of market efficiency.

Keywords: Efficient markets; Behavioral finance; Decision theory; Information uncertainty

JEL Classification: G02, G10, G14, D81

Suggested Citation

Aliyev, Nihad and He, Xue-Zhong 'Tony', Toward a General Model of Financial Markets (September 1, 2018). 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2773926 or http://dx.doi.org/10.2139/ssrn.2773926

Nihad Aliyev (Contact Author)

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia

Xue-Zhong 'Tony' He

University of Technology Sydney (UTS) - Finance Discipline Group, Business School ( email )

Haymarket
Sydney, NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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