From Efficient Markets Theory to Behavioral Finance
Robert J. Shiller
The Journal of Economic Perspectives, Vol. 17, No. 1. (Winter, 2003), pp. 83-104.
The Journal of Economic Perspectives is currently published by American Economic Association.
A.Professor of the open Yale course FINANCIAL MARKET
B.Author of Irrational Exuberance
C.One of the few economists correctly predicted the 2008 crashdown (ex ante)!
What's in this paper?
Concerntrate on behavioral finance in asset pricing/financial market
i. Volatility Anomaly
ii. Feedback Effect and Bubbles
iii. Obstacles to Smart Money (limit to arbitrage/short-selling cost)
It is the nature of scholarly research, at the frontier, in all disciplines, that initial claims of important discoveries are often knocked down by later research.
While theoretical models of efficient markets have their place as illustrations or characterizations of an ideal world, we cannot maintain them in their pure form as accurate descriptors of actual markets.