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Price bubbles and financial markets efficiency

Doncho Donev

Economic Thought journal, 2017, issue 1, 115-131

Abstract: This article presents the development of investment theories after the age of the prevailing Modern Portfolio Theory and Capital Asset Pricing Model. It starts with a review of the main theoretical and empirical presumptions of the Efficient Market Hypothesis. The emergence of behavioral finance is monitored, focusing on its contribution to the investment theory and practice. A special attention is paid on the speculative price bubbles. The paper reveals the prerequisites for their emergence, the phases through which a typical price bubble passes, and the methods for calculation of the probability for their collapse. The securities with an infinite maturity are highlighted. An example for a price bubble on the Bulgarian Stock Exchange is investigated in details. Therefore the historical performance of the main Sofix stock index is examined.

JEL-codes: G12 G17 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:bas:econth:y:2017:i:1:p:115-131

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