Question

do supporters of behavioural finance believe in effiecient markets ? explain

Answer 1

Answer:

Under effiecient markets theory, the assets prices changes only because of new information enteres the market and investors act in a appropriate and rational way.

Whereas, behavioral finance theory based on price to price feedback model. In this model prices go up becasue prices have been going up and vice versa. Investors not buys because they thinks the asset is fairly valued but they buys just because the value is going up. According to them, price is going up because other rational investors are bidding higher price,or price is going down because other rational investors are bidding lower price. So they just follow the collective expertise of the market i.e. they just follow the herd.

So, on the basis of above dicussion we can say supporters of behavioural finance not believes in effiecient markets.