Pushing The Herd Off The Cliff Edge

Capital markets provide a function which facilitates the buying and selling of long-term financial securities to increase liquidity and their value, Watson & Head (2013). Hence, the Efficient Market Hypothesis (EMH) explains the relationship that exists with the prices of the capital market securities, where no individual can beat the market by regularly buying securities at a lower price than it should be. This means that in order to be an efficient market prices of securities will have to fairly and fully reflect all available information, Fama (1970). Consequently, Watson & Head (2013) believe that market efficiency refers to the speed and quality of how share price adjusts to new information. Nevertheless, the testing of the efficient markets has led to the recognition of three different forms of efficiency in which explains how information available is used within the market. In this essay, the EMH will be analysed; testing of EMH will show that the model does provide strong evidence to explain share behaviour but also anomalies will be discussed that refutes the EMH. Therefore, a judgment will be made to see which structure explains the efficient market and whether there are some implications with the EMH, as a whole.

“Life in society requires consensus as an indispensable conditions. But consensus, to be productive, requires that each individual contribute independently out of his experience and insight. (…) We have found that tendency to conformity in our society so strong that reasonably and well- meaning young people are willing to call white black is a matter of concern” (Salomon E. Asch “Opinion and Social Pressure” pp.730). The experiment has proven that we live in times where opinion become very subjective and can be easily modified. Social techniques are wildly used in marketing and sales or even by lobbyist in governmental decision making process. The uncertainty of people own senses, opinion or knowledge can be easily abused. Asch’s experiment implements how people believe in the obvious lies. It’s shows simple ways of influencing perception, judgment and action. Results of this experiment trigger a number of social and scientifically researches like study of Berns

As Chapter 10 questions, if further evidence continues to surface that capital markets do not always behave in accordance with the efficient market hypothesis, then should we reject the research that has embraced the EMH as a fundamental assumption? In this regard we can return to earlier chapters of this book in which we emphasised that theories are abstractions of reality. Capital markets are made of individuals and as such it would not (or perhaps, should not) be surprising to find that the

Facts are statements that are indisputably true. Truthful statements are authentic because they are widely accepted to be accurate and fit reality. When answering the question “given access to the same facts , how is it possible that there can be disagreements between experts in a discipline?”, one must consider the definition of an expert. For the sake of this paper I am defining an expert as someone who excels in their field , and constantly evolves their knowledge as their field progresses. I believe that disagreements between experts when presented with the same facts, occur because of bias. Bias is a sway towards one side or view of a situation or statement. Therefore I ask , how does someone’s personal bias affect their interpretation

In the 1950's psychology researchers found that ordinary citizens' reaction to scientific evidence is based on societal risks. After viewing a football games with a series of controversial officiating decisions students from each institution were asked to make their own assessments. Students who attended the offending team's college reported seeing half as many illegal plays as did students from the opposing institution. Researchers concluded group ties unconsciously motivate people to view reality in a manner that reinforces those group ties.

In Michael Lewis’s Flash Boys, Lewis expands upon the issues related to high frequency trading, and argues that there are built in inequalities and issues in the financial markets after the emergence of regulations and technology within the stock markets and exchanges. Lewis predominantly focuses on the United States stock markets and how inequalities are being created by High Frequency Traders (also known as HFTs). The essential questions are whether High Frequency Traders are weakening the market and creating inequalities or hardships, and, if they are, who is primarily affected? Extensive research proves how high frequency trading has a negative effect on the market and potential

Conventional wisdom, two words which are defined as “generally a theory or a belief” is one of the themes in this book which is often wrong. According to John Kenneth Galbraith, conventional wisdom is comfortable and simple and not necessarily true. The definition Galbraith gave, surprisingly, seems to be accurate. Many people in this world have their own beliefs and theories which don’t necessarily have to be true. What one beliefs as true may not be considered as the truth in someone else’s life. For example, my mom’s beliefs are completely different from her older brother’s, so therefore as Galbraith said, I now understand why conventional wisdom is humble and convenient rather than always being true. In this chapter, the simple and the

The author takes a distinct standpoint from what many people conventionally hold on; for example, he rules out the tendency of

Experts in the same discipline typically agree with one another as they have the same facts and knowledge. However, when experts disagree with one another in the same discipline, it may cause contradiction between experts. Disagreements come in many different forms such as different opinions, facts, how one perceive things and one’s standard of right or wrong. In certain disciplines, such as history and art are filled with a multitude of disagreement as the two area of discipline are bias and subjective. Thus, different experts may see things differently in one discipline which can also be called area of knowledge. In history, self-serving bias and historical revisionism can alter the interpretation of evidence and influence the perspective

Accuracy, thoroughness, and thoughtfulness are cornerstones in discussing the sensitive issues addressed by the Scholar’s Think Tank track. Without accuracy, the credibility of any logical arguments presented may be called into question due to lack of sufficient evidence and research. Thoroughness requires abundant research and diligent study in order to uncover every aspect of a given topic and methodically dismantle it. Thoughtfulness is also required due to the mental investments made by various individuals; harshness and foolish jesting should not occur

It was previously assumed that economic investors and regulators (agents) utilised all available information and thus market prices were a reflection of this information with assets representing their fundamental value, encouraging the position that agents’ actions were rational. The 2007-2008 Global Financial Crisis (GFC) is posited to have originated from the notion that all available information was utilised, causing agents to fail to thoroughly investigate and confirm “the true values of publicly traded securities,” leading to a failure to register the presence of an asset price bubble preceding the GFC (Ball 2009).

Kelman, shares how people are influenced by his theory “process of Opinion change. Collins, shares and explain 's his theory “A Culture of Discipline” how it takes discipline with a passion to become a hedgehog person with an economic drive.

This document is authorized for use only by Yen Ting Chen in FInancial Markets and Institutions taught by Nawal Ahmed Boston University from September 2014 to December 2014.

Authoritative epistemology occurs when an analyst relies on another person’s authority to make a judgement. Their “basis of knowledge resides in a reference to something more

In his book, Capital Ideas: The Improbable Origins of Modern Wall Street, Peter L. Bernstein examines the innovative financial work of various academics that helped shape modern Wall Street. Bernstein sets out to show that Wall Street is in fact a fundamental and useful model to follow, rather than something to be feared. He points out that, “By combining the linkage between risk and reward with the combative nature of the free market, these academics brought new insights into what Wall Street is all about and devised new methods for investors to manage their capital.” (2) These impressive scholars have incorporated scientific measurement to the art of finance, forever