Behavioural Finance and the Efficiency of Capital Markets Essay

Behavioural Finance and the Efficiency of Capital Markets - Essay Example All the literature on market efficiency defines an efficient market as one where prices reflect all available information and sellers cannot earn windfall profits in a sustained manner (Fama, 1970). Large profits can be earned only by having inside information that is not publicly known and trading based on such information, or through misinformation; both are illegal. In an efficient market, assuming all companies disclose information to investors, only those who enter the market first may earn above average returns. Just like any other market, the one who arrives first can buy at a lower price and then, as demand goes up, sell at a higher price. This logic that consistently beating the market is not possible led to the creation of index funds that mimic the market's performance. Nevertheless, small investors unaware of these academic and empirical discussions continue to try to beat the market, only to incur expenses on fees and commissions. Behavioural finance proponents think that market-beating strategies exist and that a careful analysis of historical price trends and financial reports can pay off (Shiller, 1990). They point to stock market anomalies and other forms of market inefficiencies that allow investors to reap above average returns. He claims that conclu... Nevertheless, small investors unaware of these academic and empirical discussions continue to try to beat the market, only to incur expenses on fees and commissions. Behavioural finance proponents think that market-beating strategies exist and that a careful analysis of historical price trends and financial reports can pay off (Shiller, 1990). They point to stock market anomalies and other forms of market inefficiencies that allow investors to reap above average returns. So going back to our question: are markets efficient Fama (1998) thinks it is and that it continues to be so as proven by empirical studies (Fama and French 1992, 1993, 1996 and Malkiel, 1995). He claims that conclusions based on market anomalies discovered by behavioural finance are due to poorly done statistical work (1998, pp. 292-294) and amateurish techniques (1998, p. 296). He cited (1998, pp. 288-290) above average returns as the result of chance, that behavioural finance models are loaded with judgmental biases making it predictably easy to justify any hypothesis proposed, and that the efficient market hypothesis can explain all forms of market behaviour to date. Behavioural finance supporters Barberis, Shleifer and Vishny (1998) claim that an ongoing battle between rational and irrational traders exists in the market, with the irrational ones dominating. The systematic errors that irrational investors make when they use public information to form expectations of future cash flows overwhelm the efforts of rational traders to undo the former's market dislocating effects. Daniel, Hirshleifer, and Subrahmanyam (1998) state that irrational traders' overconfidence in interpreting

Rhetorical criticism using Ernest bormann's Fantasy theme approach and Essay

Rhetorical criticism using Ernest bormann's Fantasy theme approach and Neo-Aristotelian approach on Barack Obama's first Inaugur - Essay Example To a good number of America the election of president Obama represented hope for a new beginning and a chance to perform reforms for the better. However, many Americans questioned his ability to lead with enough background and skills to address these concerns. This thesis examines the president 2009 inaugural address. The analysis of this speech shows how the president rhetorically managed to alleviate the concern of the USA’s people. And, in what manner he was rhetorically able to convince Americans that he is the right person to led the nation to the right direction through this difficult times. First, present and explains the chosen theories within classical rhetoric and the genre of the address. He then uses the selected theories to analyze the Obama’s inaugural address. The writer then makes assessment and discussion of the thesis statement from this analysis. The thesis has Ernest Bormann's Fantasy theme approach and Neo-Aristotelian approach to determine the type of speech, the usage and appeal form used. By utilizing this approach, it was possible to deduce whether Obama’s inaugural speech was rhetoric. The Obama’s rhetoric inaugural address has its own genre. ... Inaugural address is supposed to be non-partisan and unifying. They should make people feel that if they come together they can achieve more (Fafner, 1998). Most of the Americans have a major concern about domestic and international issue. With the election of a new president, people want to feel that the needed reforms are steered for the better especially with the new leader in power. Obama’s inaugural address was an opportunity for him to show off his prowess with respect to his capacity to alleviate the concern of the Americans. In this regard, therefore, the thesis will answer a number of questions such as question: 1) how did the president rhetorically manage to alleviate the concern of Americans? 2) In what way was president Obama rhetorically able to win the hearts and minds of the Americans convincing them that he is the right person to lead them through this trying time? Method of Analysis To answer the question, the author describes theories used for them. Then a rh etoric analysis of the president inaugural address will be made based on the selected theories. While accounting for the selected theories, the focus will be linguistic analysis that utilize five cons of Aristotle ‘classical rhetoric, (memoria, action, elocutio, disposito and inventio) and the three appeal forms- (ethos, pathos and logos.) Background and literature review Classical rhetoric arose in 5th century in Athens Greece. Rhetoric refers the art of speaking and is the theory about shaping the language in a way that both the person speaking and the intended audience gains sympathy. The objective of rhetoric is to convince actuate and stimulate the audience. In the recent past the