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Tuesday, June 13, 2006

BEHAVIORAL FINANCE VS. EFFICIENT MARKET THEORY

There is an ungoing dispute between some scholars from financial universities and others over the effectiviness of technical analyses for predicting market movements.


Since the random walk model contends that price fluctuations occur randomly, technical systems which rely upon the existence of price trends cannot be profitable in the long run. The thought of a random walk being a condition and also an indication for the existence of an efficient market. Supportes of this theory deny the possibilty of predictability of pices on the stock market.


Others don't agree with this. There are studies that technical analyses do work, while even some question the efficient market theory itself eg. behavioral economist's as Tversky, Kahneman and Barberis. Some articles can be found below.





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