EQUITY MARKET ANOMALIES AND BEHAVIOURAL FINANCE

Abstract

Behavioural finance theories explain "why" individuals exh ibit behaviours that do not maximize expected utility. Behavioural finance highlights inefficiencies, such as underor over-reactions to information, as causes of market trends and, in extreme cases, of bubbles and crashes. Such reactions have been attributed to limited investor attention, overconfidence, over optimis m, mimicry (herding instinct) and noise trading. Technical analysts consider behavioural finance to be behavioural economics' "academic cousin" and the theoretical basis for technical analysis. This research work explores how anomalies in equity markets exist and there have been various discussions and arguments on this topic. It also researches the effect of these anomalies in the working of the equity stock markets in Indian context. This research expands on the research work of Shefrin [2000], who concluded through his research that recent stock market price changes exert a strong influence on risk tolerance attitudes and behaviours.