Fin 320- “behavioral finance and technical analysis”
The behavioral critique of the efficient market hypothesis (EMH) is highly credible. This critique seeks to challenge the assumption that financial markets are always efficient, which means that all available information is reflected in asset prices and so it’s impossible to beat the market. Instead, this approach suggests that irrational human behavior can lead to mispricing and other inefficiencies. Research has demonstrated that investors tend to overreact to news and form opinions on assets even when there is little evidence for doing so, making markets more volatile than EMH would suggest. Additionally, research into behavioral finance has shown how emotions like greed and fear can drive investor decisions and create bubbles or crashes in asset prices. All of this suggests that the EMH does not accurately capture reality and creates an incomplete picture of the way markets work.