The “Perpetually” Efficient Stock Market Nonsense: The Gaslighting Effects
Author:
Anelli Michele,Patanè Michele
Abstract
Abstract
One of the conventional and commonly accepted assumption in the financial world is the Efficient Market Hypothesis (Fama, 1970). However, the intellectual dominance of the efficient-market revolution has more been challenged by economists who stress psychological and behavioral elements of stock-price determination and by econometricians who argue that stock returns are, to a considerable extent, predictable (Malkiel, 2003). “Boom-bust” patterns are the empirical evidence of the efficient market nonsense. We suggest a theoretical linkage between the EMH and the Reflexivity Theory focusing mainly on the psychological profile. We suppose that, during stages of market exuberance/panic, the market pricing produces “gaslighting effects” and that mean-reverting behavior (i.e., contrarianism) is the result of participants’ awareness of psychological deviation from reality. We suspect that investors “benchmarking” plays a primary role on this latter aspect. Outside bubbles episodes, the market pricing is generally efficient and reflects the fundamental value evolution, without producing gaslighting effects.
JEL classification numbers: G10, G11, G14.
Keywords: Efficient Market Hypothesis (EMH), Reflexivity Theory, Gaslighting Effects.
Publisher
Scientific Press International Limited
Subject
Psychiatry and Mental health,General Engineering,General Materials Science,General Medicine,General Engineering,General Economics, Econometrics and Finance,General Energy,General Medicine,General Earth and Planetary Sciences,General Environmental Science,Polymers and Plastics,General Environmental Science
Cited by
1 articles.
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