Finance Essay Example | Topics and Well Written Essays - 250 words - 3

Finance - Essay Example ormula also clearly generated risk associated with the investment and thus shows the possible measures to take in a given risk scenario in an investment. This is a financial field which proposes the use and application of psychology based theories which are used to explain the anomalies in the stock market. In this context, the assumption in behavioral finance is the characteristics of market participants and the information structure which systematically influences the investments individual decision in the market outcome. This evident in various stock exchange markets which investors have assumed on making the best decisions. In this area, there are numerous incidents of this phenomenon in the security market which contradicts the market hypothesis in the investor’s rationality. In this context, the behavioral finance hypothesis seems to attempt to cover and replace the investment void. In any investment, this theory states that it is totally impossible to beat the market due to the efficiency of the stock market which makes the existing shares to incorporate and thus reflecting the information which is relevant in accordance to this theory. It is therefore the investor purchases the undervalued stocks or eventually sells out the stock in inflated prices. Efficient Market Hypothesis (EMH) Definition | Investopedia." Investopedia - Educating the world about finance. N.p., n.d. Web. 27 Mar. 2013.