Not a valid market (Introduction to Behavioral Finance)

Author: (American) Schiller, written by Schiller, translated and edited by Zhao Yingjun
Publisher:
Publishing Date: 2003-06-01
Features: This book comprehensively introduces the fundamental knowledge of behavioral finance. It is also an introductory work on behavioral finance personally written by a master of behavioral finance, undoubtedly an essential reading for thoroughly understanding behavioral finance. It is believed that the publication of the Chinese version will further promote the popularization and dissemination of behavioral finance, an academic field in which Schiller has devoted a great deal of effort. In the past 30 years, the Efficient Market Hypothesis has been the core proposition of financial theory. According to this theory, whether because all investors are rational or because arbitrage can eliminate price deviations, the prices of securities in financial markets must equal their fundamental value. This book presents a completely new approach to studying financial markets: the behavioral finance theoretical analysis method. This method first points out that assuming all investors are rational and that the role of arbitrage can be fully realized severely violates psychological principles and is fundamentally unworkable. In real financial markets, those who trade with arbitrageurs are not completely rational investors, and the arbitrageurs themselves are limited by risk aversion, limited operational time, and agency problems. This book proposes and tests some theoretical models for this non-efficient market. Based on available financial data, behavioral finance models not only provide better explanations than the Efficient Market Theory but also propose new empirical testing and predictive methods. These models can explain various so-called anomalies, such as achieving higher returns by investing in undervalued stocks, the puzzle of closed-end funds, the rapid increase in stock returns after being included in an index, the sustainability of stock price bubbles, and even the collapse of several famous hedge funds in 1998. By reviewing and expanding the research on behavioral finance theory, this book provides a new theoretical framework and a basic framework for conducting empirical tests to analyze real-world financial markets.