(Penman, 2003). In addition, investors consult investment analysts who provide an almost endless stream of information and recommendations to sort out. There are often claims that some shares are undervalued and vice versa. (Penman, 2003).
This information at times becomes confusing leaving the investor with no clear indication of what the true prices of stocks should be. (Penman, 2003). Under such circumstances, the investor is forced to make the investment decision following his/her instinct or based on the information provided by the market. (Penman, 2003, Kaplan & Norton 1992, 1993). Investors who make the decision based on instinct are referred to as intuitive investors while those who make investment decisions based on capital market efficiency are referred to as passive investors. (Penman, 2003). Passive investors carry out their investment decisions based on the assumption that the market price is a fair price for the risk taken, that is, that market forces have driven the price to the appropriate point. (Penman, 2003).
These investment mechanisms appear to be very simple, as they do not require much effort. (Penman, 2003: pp 3). ...Show more