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Limited Rational Behavior Of The Stock Market The Main Study

Posted on:2002-03-16Degree:MasterType:Thesis
Country:ChinaCandidate:H T LiuFull Text:PDF
GTID:2206360032454233Subject:Finance
Abstract/Summary:PDF Full Text Request
As the basic of modem financial theory, efficient market hypothesis (EMH) plays an important role in the whole system. The conclusion of EMH on capital market is mainly based on the assumption of investors' perfect rationality. This assumption tried to shed light on investors' behavior by "how they should make decisions" but not "how they actually make decisions in the real market". From the viewpoint of positive economics, it has obvious limitations and cannot explain the "anomaly" in capital market very well.Based on the EMH, traditional financial economists were inclined to believe the "market selection". They believe that the irrational traders be eliminated from the market through their competition with rational traders and the market go back to its equilibrium point. By the introduction of a noise trade model, behavioral finance economists hold that irrational traders are not necessarily be washed out, on the contrary, they could "create their own space" by the higher risk they take.The behavior of investors is heavily influenced by their anticipation while the institutional environment and the equrtableness are key factors to a reasonable efficient capital market. The anomaly of China's stock market is mainly caused by the shortage of institution and by the lack of equrtableness.
Keywords/Search Tags:efficient market hypothesis, behavioral finance, irrational trader, noise trade
PDF Full Text Request
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