Review on Efficiency and Anomalies in Stock Markets

Abstract

The efficient-market hypothesis (EMH) is one of the most important economic and financial hypotheses that have been tested over the past century. Due to many abnormal phenomena and conflicting evidence, otherwise known as anomalies against EMH, some academics have questioned whether EMH is valid, and pointed out that the financial literature has substantial evidence of anomalies, so that many theories have been developed to explain some anomalies. To address the issue, this paper reviews the theory and literature on market efficiency and market anomalies. We give a brief review on market efficiency and clearly define the concept of market efficiency and the EMH. We discuss some efforts that challenge the EMH. We review different market anomalies and different theories of Behavioral Finance that could be used to explain such market anomalies. This review is useful to academics for developing cutting-edge treatments of financial theory that EMH, anomalies, and Behavioral Finance underlie. The review is also beneficial to investors for making choices of investment products and strategies that suit their risk preferences and behavioral traits predicted from behavioral models. Finally, when EMH, anomalies and Behavioral Finance are used to explain the impacts of investor behavior on stock price movements, it is invaluable to policy makers, when reviewing their policies, to avoid excessive fluctuations in stock markets.

The Sustainability of Energy Substitution in the Chinese Electric Power Sector

“…Academics could also apply our approach to study other markets; for example, stock markets (Batmunkh, et al, 2018 [5]; Cheng, et al, 2019 [32]; Demirer, et al, 2019 [46]), funds (Gupta, et al, 2019 [47]; Abid, et al, 2014 [1]; Chiang, et al, 2008 [23]; Lean, et al, 2012 [36]; Levy, 2020 [48]; Li, et al, 2018 [29]), commodity (Yuan, et al, 2020) [49], warrant (Wong, et al, 2018 [50]) and futures (Clark, et al, 2016 [51]; Qiao, et al, 2012Qiao, et al, , 2013). There are many other issues to which academics can apply our approach; see, for example, Woo, et al, (2020) [54] and Chang et al, (2018) [55] for more information.…”

Scale Development and Exploration in Representativeness Bias Intervening Investment and Financial Decisions

“…Behavioral finance proposes that psychological influences and behavioral biases affect investors and financial advisors. It further posits that biases can be the source of market anomalies, especially those in stock exchange, like the abrupt rise and fall in prices (Woo, Mai, McAleer and Wong, 2020). It helps to understand how people make certain financial decisions and how these decisions can affect financial markets.…”

Editorial Statement and Research Ideas for Efficiency and Anomalies in Stock Markets

“…The special issue of Efficiency and Anomalies in Stock Markets has published 10 papers including (Guo et al 2017;Ali et al 2018;Ahn et al 2018;Chiang 2019;Ehigiamusoe and Lean 2019;Jena et al 2019;Lam et al 2019;Zhang and Li 2019;Chang et al 2019;Woo et al 2019;Wong 2020).…”

“…Among them, (Woo et al 2019) review the theory and literature on market efficiency and market anomalies. (Chiang 2019) examines the efficient market hypothesis for 15 international equity markets, and (Guo et al 2017) develop the theory to test for market efficiency and check whether there is any expected arbitrage opportunity and anomaly in the market.…”

“…We first discuss more detail about the work by (Woo et al 2019;Chiang 2019;Guo et al 2017). (Woo et al 2019) review the theory and literature on market efficiency and market anomalies. They first review market efficiency, define clearly the concept of market efficiency and efficient-market hypothesis (EMH), and discuss some efforts that challenge EMH.…”