From Efficient Market Theory to Behavioral Finance

Robert Shiller

No 1385, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: The efficient markets theory reached the height of its dominance in academic circles around the 1970s. Faith in this theory was eroded by a succession of discoveries of anomalies, many in the 1980s, and of evidence of excess volatility of returns. Finance literature in this decade and after suggests a more nuanced view of the value of the efficient markets theory, and, starting in the 1990s, a blossoming of research on behavioral finance. Some important developments in the 1990s and recently include feedback theories, models of the interaction of smart money with ordinary investors, and evidence on obstacles to smart money.

Keywords: Speculative markets; Rational expectations; Psychology; Anomalies; Excess volatility; Feedback; Smart money; Limits to arbitrage; Short sales (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2002-10-01
New Economics Papers: this item is included in nep-cbe, nep-cfn, nep-fmk and nep-pke
Note: CFP 1055
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Published in Journal of Economic Perspectives (Winter 2003), 17(1): 83-104

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