Inefficient Markets: The Third Theme
Markets are efficient when prices coincide with intrinsic value. Heuristic‐driven bias and frame dependence combine to render markets inefficient. Representativeness leads to the winner–loser effect, whereby investor overreaction causes prior long‐term winners to become future long‐term losers, and prior long‐term losers to become future short‐term winners. Conservatism leads security analysts to underreact to earnings surprises, thereby generating short‐term momentum in stock prices. Frame dependence leads investors to frame stock returns in terms of short horizons instead of long horizons. As a result, investors require a larger equity premium than they would if they framed returns using longer horizons. Prices can deviate from fundamental value for long periods, with excess volatility the result.
Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.
If you think you should have access to this title, please contact your librarian.