Inefficient Markets: An Introduction to Behavioral Finance

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Oxford University Press, 2000 - Business & Economics - 216 pages
5 Reviews
The efficient markets hypothesis has been the central proposition in finance for nearly thirty years. It states that securities prices in financial markets must equal fundamental values, either because all investors are rational or because arbitrage eliminates pricing anomalies. This book describes an alternative approach to the study of financial markets: behavioral finance. This approach starts with an observation that the assumptions of investor rationality and perfect arbitrage areoverwhelmingly contradicted by both psychological and institutional evidence. In actual financial markets, less than fully rational investors trade against arbitrageurs whose resources are limited by risk aversion, short horizons, and agency problems. The book presents and empirically evaluates models of such inefficient markets. Behavioral finance models both explain the available financial data better than does the efficient markets hypothesis and generate new empirical predictions. These models can account for such anomalies as the superior performance of value stocks, the closed end fund puzzle, the high returns on stocks included in market indices, the persistence of stock price bubbles, and even the collapse of several well-known hedge funds in 1998. By summarizing and expanding the research in behavioral finance, the book builds a new theoretical and empirical foundation for the economic analysis of real-world markets.

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Review: Inefficient Markets: An Introduction to Behavioral Finance

User Review  - Bill - Goodreads

Very good summary of Shleifer's contributions to behaviourial finance - lucid writing. It has a significant amount of mathematics though, which is used in an academic manner. As a 19 year old kid ... Read full review

Review: Inefficient Markets: An Introduction to Behavioral Finance

User Review  - Michael Quinn - Goodreads

Certainly not the easiest read, and definitely not for everyone, but this is by far the most intense and insightful book I've read yet on behavioral finance. Read full review

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About the author (2000)


Andrei Shleifer is professor of Economics at Harvard University.

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