Finance & Accounting
Pages 12 (3012 words)
Download 0
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. ...
Download paper
Not exactly what you need?

Related papers

Behavioural Finance Viev On Market Bubbles
This paper investigates these market events through relevant research material and identifies the anatomy and behavioral finance phenomena of the events using information. The tulip bulbs speculation, which was at its peak in February 1637, and the consequent market crash that followed mark the most notorious economic hard times in the History of Dutch (Goldgar, 2007:5). Together with Britain’s…
10 pages (2510 words)
Efficient Markets Theory and Behavioral Finance
In this theory, therefore, assumptions are done perpetuating that the information organisation and the behaviour of market participants systematically control individuals’ decisions in investment and the outcomes of the market. According to (Malkiel, 2003) the efficient market theory, has implications of theoretical perspectives to the market trends, while it ignores or under estimate the…
6 pages (1506 words)
Development of Behavioural Finance
This was followed by Selden’s ground breaking work on the stock exchange where he attempted to explain people’s financial behaviour in the stock exchanges (Selden, 1912). Further work on behavourial finance continued through the efforts of psychologists such as Leon Festinger who introduced the concept of cognitive dissonance (Festinger et al., 1956). The more modern trends in behavourial…
5 pages (1255 words)
Behavioural Finance
It is very clear that some of the participants in the market do not make rational decisions which translate to mistakes. However, astute market players get the chance to capitalize on such mistakes. For instance, a rational investor can take the decision to buy when there is market crash resulting from speculative behavior (Mussweiller & Schneller, 2003, p. 124). Given a risk-adjusted basis,…
3 pages (753 words)
Market efficiency
There are various forms or degrees of market efficiency which exists. These comprise of strong market efficiency, semi-strong market efficiency and the weak form market efficiency (Ho & Yi, 2004; p. 57). Acknowledging the efficient market hypothesis in its simplest and purest form might be hard; nevertheless there are three main types of efficient market hypothesis which have the purpose of…
7 pages (1757 words)
During the period of tulip mania it has been observed that the cost of a single tulip had surpassed the average income of an expert employee. The period of tulip mania was considered to be a golden age in the Dutch calendar where the prices of the tulip bulbs reached to an unexpected extent (Thompson, 2006). Literature Review and Explanation of Tulip Mania (of the 17th century) At present time,…
4 pages (1004 words)
Behavioural Finance
Adverse and extreme climatic conditions have increased in frequency and severity and adapting to these changes has now become a reality (Stiglitz, 2010, 19). Due to the rising population, the demand for natural resources has risen which has led to overexploitation of natural resources and degradation of the environment, food and oil prices have skyrocketed and debt crisis in most countries has…
12 pages (3012 words)