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Efficient Market Hypothesis

Definition 1

According to the efficient market hypothesis, the price (market value) of a security reflects its true worth (intrinsic value). In a market with perfectly rational agents, “prices are right”. Findings in behavioral finance, by contrast, suggests that asset prices also reflect the trading behavior of individuals who are not fully rational (Barberis & Thaler, 2003), leading to anomalies such as asset bubbles.

Source: Behavioral Economics

Definition 2

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