The Stock Market between Classical and Behavioral Hypotheses: An Empirical Investigation of the Warsaw Stock Exchange

Robabeh Bahlouli,Mostafa Raeisi Sarkandiz

doi:10.33119/erfin.2019.4.2.1

Robabeh Bahlouli, Mostafa Raeisi Sarkandiz

Open Access

https://doi.org/10.33119/erfin.2019.4.2.1

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Journal: Econometric Research in Finance	Publication Date: Sep 24, 2019
Citations: 1	License type: CC BY 4.0

Affiliation: University of Tabriz

Abstract

In empirical studies of the efficient market hypothesis using a classic approach, attention has generally been paid to the weak form of performance; other aspects of efficiency, such as informational efficiency, have not been addressed. Also, the study of alternative theories, such as behavioral hypotheses, is neglected. This article seeks to investigate not only the weak and informational forms of the efficient market hypothesis, but also to test the adaptive and fractal market hypotheses as two alternative theories by conducting an empirical study on the Warsaw Stock Exchange.

Highlights

Since Fama (1965) first introduced the concept of market efficiency, a considerable amount of economic investigation has been centered on whether to accept this hypothesis
In empirical studies of the efficient market hypothesis using a classic approach, attention has generally been paid to the weak form of performance; other aspects of efficiency, such as informational efficiency, have not been addressed
In the first part of this section, we examine the weak form of the efficient market hypothesis using two methods: unit root tests and Shannon’s entropy method

Summary

Introduction

Since Fama (1965) first introduced the concept of market efficiency, a considerable amount of economic investigation has been centered on whether to accept this hypothesis. Prices reflect the fundamental information about active companies in the market. This hypothesis states that any price deviations are quickly corrected by arbitrageurs. Shleifer (2000) asserts, in contrast to the efficient market hypothesis, that the behavioral finance theory indicates arbitrage is risky and limited. The importance of establishing which of these two hypotheses is correct is that if the market is not efficient it can be argued that with limits on arbitrage, there is the possibility of creating asset bubbles. With the continuation of deviations from the fundamental trend and an incremental increase of the bubble, there will probably be an economic crash

Objectives

Discussion

Conclusion