Rational and irrational approaches to investors’ transactions in financial markets

Viktor P. Ivanitsky and Vasily A. Tatyannikov
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Viktor P. Ivanitsky: Ural State University of Economics, Ekaterinburg, Russia
Vasily A. Tatyannikov: Ural State University of Economics, Ekaterinburg, Russia

Journal of New Economy, 2019, vol. 20, issue 5, 61-74

Abstract: Under high financial market volatility, the balance in contradictions between rational and irrational approaches to investors’ transactions shifts towards the domination of the behavioral component. However, further instability of financial markets casts doubt on the fairness of asset pricing as one of the main target indicators of the market economy. The article deals with the research of two completely opposite theories of investors’ behaviour in financial and commodity markets. The authors connect rational investors’ behaviour with the basic theories of quantitative finance, and their irrational actions with the varieties of behavioural finance. The methodological foundation of the research includes classical theories of asset valuation and modern theories of finance with the dominant role of psychology in the monetary model of the world economy development. The research methods encompass analysis and comparison of the market uncertainty and market efficiency levels, detailing and summarising the negative impact of cognitive psychology on pricing in the context of existing information asymmetry in financial markets. The findings are of theoretical and practical importance and can be used both to develop and implement measures in the field of financial (stock) market regulation, and examine the causes of poor engagement of the Russian population in the investment process.

Keywords: theories of asset assessment; efficient-market hypothesis; rational behaviour of investors; market uncertainty; economic agent; information asymmetry. (search for similar items in EconPapers)
JEL-codes: E44 G02 G12 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:url:izvest:v:20:y:2019:i:5:p:61-74

DOI: 10.29141/2073-1019-2019-20-5-4

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