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Rationality Of Financial Markets On Investment Variables

595 words - 3 pages

    The rationality of financial markets has been one of the most hotly contested issues in the history of modern financial economics. Recent critics of the Efficient Markets Hypothesis argue that investors are generally irrational, exhibiting a number of predictable and financially ruinous biases such as overconfidence, overreaction, loss aversion, herding, psychological accounting, miscalibration of probabilities, and regret. The sources of these irrationalities are often attributed to psychological factors – fear, greed, and other emotional responses to price fluctuations and dramatic changes in an investor’s wealth. In response to the mounting evidence of departures from market efficiency, a growing number of economists, psychologist, and financial-industry professionals have begun to use the terms “behavioral economics and behavioral finance to differentiate themselves from the standard orthodoxy.
    The need for investment especially for a developing nation such as the Philippines can never be emphasized enough. The economics of expansion cannot be understood without the participation of the capital markets. The need for capital markets started with the need for capital to finance mercantilist expansion. The modern stock market is not different, especially in the advent of globalized trade and international markets. The report that only less than one per cent of Filipinos invest does not come as a surprise. For decades, the stock market has been regarded to be for the rich, the intelligent, or the risk taker.  People have been hesitant or even cautious about giving the stock market a try for fear of venturing into the unknown and losing money – they were probably never taught about it at home or in school. Lacking to no knowledge of something leads to foolishness. And Filipinos are ignorant when it comes to the Stock Market. The words “stock” and “market” is...

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