What is an ineffective market?
The ineffective market is a market in which the prices of traded items do not reflect the best available information regarding their value. Some items will be overvalued while others are undervalued. As a result, some investors will realize more yields than they are guaranteed, while others will have a greater risk than they are planned. Such a situation may occur unless relevant business information or traded item has been published by the subject of sufficient analysis. This may also happen when investors ignore relevant information and are motivated by hype or emotional reaction.
Effective market hypothesis (EMH) is in direct contrast to an inefficient market. This hypothesis claims that items such as stocks will be based on rational evaluation of the best available information. Incorrect shares valuation could only exist temporarily before the market eliminates the mismatch. EMH implies that the investment is returning greater than the mold -way RCET as a result of professional analysis should not be neuStill possible. Higher revenues would only be possible by investing higher risks.
widely accepted as a theoretical model, there is a significant controversy in the application of EMH to real markets. There are investors who have consistently exceeded the market average in the long term. Market and bubble accidents, grossly overvalued shares, would suggest that markets with the real world behave in many ways as an inefficient market.
The behavioral economy seeks to explain the decision leading to an inefficient market in terms of psychological and emotional factors. This approach attempts to take into account the market behavior that is contrary to EMH, and cannot be explained if the investor is assumed that the investor makes a rational decision. The pace and presentation of information together with the characteristics of the market participants are studied. These are considered to be factors affecting the decisions of individual investors and wells, such as the market direction as a whole.
One such factor is referred to as the psychological state or sentiment of the market. Studies of long -term trends present examples of market turns, which are contrary to the assumption of rational selection. The effect of the car can cause investors to connect to the trend in contradiction with their belief and analysis. Similarly, rational investors can be sweeten in panic sale, driven by an unfounded fear of economic loss. Each of these psychological states leads to prices that do not reflect the actual value of shares and create an inefficient market.
rainfall or falsifying information about the company to increase the perceived financial situation can lead to inaccurate valuation of shares. On the basis of an inefficient market, it also contributes to support for the sale of specific shares that is not worth but increase fees for brokerage. Such unethical and illegal practices of the Arifactors are outside the range of market theory. However, they are common and undermine an objective analysis of the investor.