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BEHAVIOURAL FINANCE AND MARKET EFFICIENCY
Finance & Accounting
Pages 12 (3012 words)
Behavioural Finance and Market Efficiency Student’s Name: Date of Submission: Total Number of Words: 2,998 1. Introduction Since 1990s, the study of behavioural finance and market efficiency often goes hand in hand. In most cases, inefficient market can lead to the development of economic recession.
Due to the presence of inefficiency within the global market, the sales and profitability of a company is not only affected but also the country’s ability to build a more reliable capital asset. Therefore, in response to poor market efficiency, the study on behavioural finance has gained importance back in 1990s2. Using knowledge on behavioural finance, the main causes and underlying drivers of the most recent global financial crisis will be identified and tackled in details. As part of analyzing the factors that has triggered the recent global financial crisis, both behavioural and non-behavioural explanation behind such crisis will be compared and contrast. In relation to the presence of irregularities in the global markets, whether or not “value” is riskier than “growth” will be answered based on the theory behind the rational risk pricing. 2. Main Causes and Underlying Drivers of the Most Recent Global Financial Crisis 2.1 Non-behavioural Explanation behind the Most Recent Global Financial Crisis Next to the Great Depression which occurred back in 1930s, the worst global financial crisis happened between 2007 to 2008 when most of the large-scale financial institutions worldwide were at risks of bankruptcy aside from the sudden fall in the stock markets3. Specifically the U.S. ...
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