In the field of finance and economic sciences, many of the theories have an implicit in premise that investors are rational. Rational investors are risk averse and do determinations to maximise their expected public-service corporation of wealth ( Scott, 2009 ) . The expected public-service corporation of an investor relates to the expected final payment of a peculiar determination. Rationality theory besides assumes that investors are risk averse and they are invariably doing a risk/return trade-off. They want maximal return for lower limit hazard. But in world, investors may non ever move in a rational mode and there may be other factors which come into drama when an investor is faced with determination doing other than reason. After all, worlds are emotional existences and at times their emotions may play more of a function in determination devising than reason. Emotions can at times take over investor determinations and do them to do determinations which are irrational. Such behaviour is evident in market bubbles such as the hi-tech bubble and the more recent subprime bubble. Investors acted in an irrational mode foremost doing impulse and subsequently a prostration due to panic. Such cases highlight the impression that investors do non ever move rationally.
To foster look into whether investors are ever rational, experts in the field of accounting were interviewed. The interviewees have many old ages of experience in their field and hold had the chance to interact with all types of investors over the old ages. The interviewees could pull decisions with respects to investor behaviour as a consequence of their observations over a long period of clip. These decisions can be reasonably used to stand for investor behaviour in the existent universe and can be compared to the bing theory in respects to investors and reason. From these interviews, many differences between theory and world are highlighted as discussed in this research paper.
Decision Usefulness Approach
Rational investors will do determination based on the highest expected public-service corporation ( Scott 2009 ) but uncertainness is one of their major restraints. Investors will utilize information as one of their resources to do determination and revise their determinations based upon latest information.
The information: Through our interviews we observed that investor believe that they need to cognize everything about a company, its merchandise, its direction, its workers, its market, the hereafter and other options to put. They want to take as much of the unknown out of the equation. This is consistent with the determination usefulness attack. In other words this is how rational investors should do their investment determinations. The conceptual model uses the same attack sing fiscal information. For illustration CICA Hand Book says “ the aim of fiscal statements is to pass on information that is utile to investors… … in doing their resource allotment determinations and/or measuring direction stewardship. ( Section 1000, .15 ) ” Similarly, FASB in SFAC 1 wrote that fiscal coverage is intended to supply information that is utile to investors and creditors in doing concern and economic determinations ( SFAC # 1, FASB 1978 p.5 ) . Last both FASB and IASB, in 2006 said that “ The aim of general purpose external fiscal coverage is to supply information that is utile to show and possible investors and creditors and others in doing investing, recognition, and similar resource allotment determinations ( IASB 2006 ) . This follows that from SFACs to IFRS all the criterion compositors agree and are convinced that investors are rational. Therefore, they want the companies to circulate the needed information through fiscal statements proper, revelations and MD & A ; A.
Harmonizing to Efficient Market Theory, investors are able to absorb every spot of information that they have entree to. The theory besides indicates that it is difficult to surpass the efficient market since the portion monetary values ever reflect everything that is publically available about the future chances of a concern.
Our interviews showed the investors do hold that markets are efficient and explained that this is the ground that they invest in these markets. Thus investors are convinced that markets are efficient long before they make an existent investing in the market. If a hazard averse investor doubts the efficiency, he will merely remain out of the market. Thus the interviewees thought that investors are monetary value protected by efficient market. Investors incorporate the available information to ‘estimate ‘ and ‘project ‘ the returns. Thus our interviewees viewed the investors as hazard impersonal as opposed to put on the line averse. They want to maximise their return merely by trusting on the market. This observation is chiefly inconsistent with reason theory.
Time slowdown in fiscal information: Our interviewees were of the sentiment that markets are more efficient than we likely think. Particularly, in the long tally. Their statement was that market incorporates the information today that will be reported on fiscal statements tomorrow. This observation is consistent with Capital Asset Pricing Model ( CAPM ) ( Scott 2009 ) CAPM describes the relationship between the market monetary value of a security, its hazard, and the expected return on the security. The theoretical account assumes that investors are rational in footings of their outlooks about the hereafter. They know the market hazard i. e. beta and the expected return on market. In an efficient market, the expected returns from any investing will be consistent with the hazard of that investing over the long term, though there may be divergences from these expected returns in the short term. This response is besides consistent with the BB survey ( Ball and Brown ) ( Scott 2009 ) that ‘prices lead net incomes ‘ . The lone difference that our experts did non recognize was that over wider window, may be 10 old ages, the association between portion returns and net incomes additions as the window widens. Easton, Harris and Ohlson ( 1992 ) besides found that when we widen the window consequence of slowdown between historical cost net incomes and security returns decreases.
Expected hard currency flow: Based on Lowenstein ‘s paper ( Lowenstein 2005 ) , a rational investor will keep their portions on short term footing because investors can foretell company ‘s future hard currency flow in short term. Lowenstein believes that it is difficult to foretell long-run expected hard currency flow ; it is argued that people will be better off if they trade in short-run period. Short-run investors have to be more careful as they can run into utmost instances such as stock market bubbles. Stock monetary values can progressively lift above rational values and it is difficult to foretell when it will stop. One of our interviewee ‘s prefers to keep his portions in long-run period instead than short-run period, and he thinks that it is more rational to make so. Investors tend to keep long-run investing because they tend to purchase portions in companies that have a long path record and pay steady dividends. Since rational investors are believed to merchandise at short-run period, and our interviewees believe that in order to be a rational investor, investors should merchandise their portions at long-run period ; hence, there are differences between what Lowenstein argued and our interviewee ‘s response. Rational investors normally buy portions based on house ‘s future hard currency flow ( Scott, 145 ) ; and it is difficult to foretell house ‘s hard currency flow in long-run period. Hence, Lowenstein argued that it is better to keep portions in short-run period instead than long-run period. Our interviewees prefer to utilize other resources to do anticipation such as company ‘s repute, company ‘s stableness, and liabilities to assets ratio instead than ciphering company ‘s future hard currency flow. There should be no job if some investors prefer to keep their portions on long-run period. Even though market monetary value is fluctuating in important per centum daily, nevertheless in long term period ( 10 old ages or more ) portions monetary values will be increasing. Higher hazard will bring forth higher return. Our interviewees, they compared between portions and bond in long-run period, the consequence is portions will bring forth more return than bond. It does non count whether investors hold their investing long-run or short term ; it is based on their scheme to acquire return. Rational investors have their ain scheme for holding-period term.
Guess and extra market volatility: But it is naive for our investors to presume that markets are to the full efficient. Actually, extra stock market volatility investigated by Shiller ( 1981 ) reduces market efficiency. By and large, most investors select conservative investings with low volatility, and keep their investings for the mid- to hanker footings whereas, bad investors, want higher returns on their investings. In order to accomplish higher investing consequences, these investors tend to take investings with high volatility. Although the higher volatility increases the possible for net income, it is a bad investing and is capable to possible fraud. Bad investors besides tend to merchandise more often, the clip frame and vary from a few months to hours. The decreased trading clip frame produces greater chances to recognize net incomes but besides increases the possible hazard for losingss. As we can see, guess, on the one manus, it has increased the potency for higher investing return, and on the other, it has increased the potency for losingss. Bad investors do non move in conformity with rational-investor theory and are non considered as rational participants in the market.
A major hurt to market efficiency is behavioural finance or heterogeneousness of rational investors. For many decennaries, economic experts have argued and had uncertainties about the construct of a rational investor, a individual that is logical and makes the right fiscal picks, maximizes his wealth and public-service corporation. But psychologists have found it the opposite as to why they are non rational investors.
Harmonizing to the survey known as the behavioral finance an mean investor is filled with incompatibilities and unreasons. Investors are human and it is non surprising that fiscal markets reflect human infirmities. They point to the frequence with bad bubbles have formed in fiscal markers, as investors buy into crazes or get-rich-quick strategies, and the clangs with these bubbles have ended, and suggest that there is nil to forestall the return of this phenomenon in today ‘s fiscal markets. They have come to reason that there are certain features that an mean investor inhibits such as societal, emotional and cognitive prejudices that cause him to move irrationally.
Subjective nature of public-service corporation: Utility derived from the usage of same good can be different for different people. An illustration of such a state of affairs can be derived from our interview. There was a instance that an investor that held portions of a peculiar company which he and his married woman had purchased together. But after the decease of his married woman, he continued to keep onto these portions irrespective of the fact that the company portion monetary value was worsening and the company was undergoing some serious fiscal jobs. The investor continued to keep onto these portions because he had an fond regard to them and to this investor, it made sense to keep on to the portions. It increased his public-service corporation. Now, from the point of view of a rational investor, this does non do sense at all and the appropriate action to maximise public-service corporation would be to sell the portions. In his peculiar state of affairs, the investor did what maximized his public-service corporation. His determination was an emotional one and evidently non based on reason.
Different reaction to same information: It is non unusual that investors have both under and over reactions towards fiscal information released and corporate event proclamation. In some instances, even extremely experient professional analysts tend to over/under react to good/bad gaining intelligence. Harmonizing to “ Investor Reaction to Corporate Event Announcement: under reaction or overreaction ” , houses that announce a corporate event after the release of good intelligence earn higher long-run unnatural returns than houses that announce the event after the release of bad intelligence, and investors appear to under react to prior information every bit good as to information conveyed by the event ( Glaser, Noth and Weber 2003 ) . However, the writer does non give exact grounds for why investors under react in such state of affairss. The article besides suggests that investors tend to overreact to long-run tendencies and under react to short-run fiscal information ; it concludes that unforeseen alterations in long-term net income chances appear to be the cardinal to mis-reaction. Although mis-reaction frequently affects the short term market conditions and increases the market volatility, over the long term, after all the information available ( disregard the impact of inside information ) reflected into the market, the impact of investors ‘ mis-reaction will diminish and finally be eliminated if the market is efficient. This observation was consistent with individual individual determination theory ( Scott 2009 ) .
All investors are non indistinguishable. If they are given the same information, they will construe it otherwise and as a consequence will move in a different manner. This is because some conservative investor ‘s scraggy new grounds ( Barberis, Shleifer and Vishny, 1998 ) and investors have limited attending ( Hirshleifer and Teoh, 2003 ) . Even though these inefficiencies exist it is still difficult to do net income from them due to restrictions to arbitrage.
As Mark Rubinstein found that even if markets are irrational because monetary values are excessively volatile comparative to basicss, there may be no manner an investor can utilize that information to do net incomes. Or if a stock is overpriced but there are important obstructions to short-selling or important trading costs, an investor may non be able to make much about it. ( Mark Rubenstein ) Thus markets are non absolutely rational they are at least minimally rational: although monetary values are non set as if all investors are rational, there are still no unnatural net income chances for the investors that are rational
Self Attribution Game: Investors believe that when determination turns out good it is because of them and when the existent return are below their outlook it is out of their control, for illustration the provinces of nature, mistake in the information, and deficiency of full closing.
Over-Confident and Intuitive Thinking: Investor are excessively self confident and be given to be opinionated about things that they are non good informed on and do determinations based upon their sentiments. Though investors are known to take hazards and drama with opportunity, they over exaggerate their ain accomplishment and opinion. In an exemplifying survey, Fischhhof, Slovic and Lichtenstein asked people factual inquiries, and found that people gave an reply and systematically overestimated the chance that they are right. In fact, they were right merely approximately 80 % of the clip that they thought they were ( Slovic, 1977 ) . One of the cardinal indexs of this over assurance is simply psychological. Human existences seem to hold a leaning to hindsight prejudice, i.e. , they observe what happens and act as it they knew it was coming all the clip. Therefore, you have investors that claim to hold seen the clang in dot.com companies in the late 1990s coming during earlier old ages, thought nil in their behaviour suggests that they of all time did. This observation is consistent with Psychological Theory and grounds produced by Brad M. Barber and Terrence Odean that persons are over confident.
Herd Behavior: The herd behaviour can be described as a desire to be portion of the crowd as a agency of an investor non desiring to lose out on an chance. This can be seen in the yesteryear in such bubbles as the Gold Bubble, lodging bubble. While there is a inclination to depict herd behaviour as irrational, it is deserving observing that you can hold the same phenomena occur in absolutely rational markets through a procedure called information cascade. All excessively frequently, in puting, investors at early phases in the procedure ( initial public offering ) heap into specific initial public offerings and force their monetary values up. Other initial public offerings are ignored and languish at low monetary values. It is wholly possible that the first group of stocks will be overvalued, while the latter are undervalued. Since herd behaviour is made worse by the spreading of rumours it can be said that irrational investors affect market monetary values.
Quick to merchandise: Average investor wants to do a speedy return every bit rapidly as possible. Whereby statistics have shows that if an investing is held on a longer term, opportunities of holding a higher return are greater than for short term. Investors that sell victors excessively shortly, fail to acknowledge that winning stocks that get sold early continue to travel up for months after the sale. Many believe that the more options an investor has more opportunities they have of a higher return than expected but unluckily more options result in an investor being more nerve-racking and baffled and leads him to do irrational determinations.
Representativeness Bias: Sometimes representativeness bias causes investors to give excessively much weight to recent grounds and excessively small weight to grounds from the yesteryear. Investors are besides more likely to purchase stocks that represent desirable qualities. It is non uncommon that investors confuse a good company with a good investing. Classifying good stocks as houses with a history of consistent net incomes growing ignores that fact that few companies can prolong the high degrees of growing achieved in the yesteryear. The popularity of these “ good ” houses drives stock monetary values higher until the stock becomes overpriced. Overtime, investors become cognizant that they have been excessively optimistic in foretelling a company ‘s future growing and subsequently the stick monetary value of the company falls. Investors besides commit representativeness prejudice when analyzing past stock returns. For illustration, stocks with hapless ( strong ) public presentation during the past three to five old ages may be considered also-rans ( victors ) . Some investors consider this past return to be representative of what they can anticipate in the hereafter. In other words, such investors tend to be excessively optimistic about past victors and excessively pessimistic about past also-rans. This may non ever be the instance, De Bondt and Thaler ( 1985 ) shows that the also-rans tend to surpass the victors over the following three old ages by 30 % in footings of stock return.
Using past as Hell of future: One of our interviewees was of the sentiment that he makes investing determinations based on companies that have really long path records and have survived about all outside market conditions or involvement bearing investings that take about all volatility out of consideration. However, whether this observation is a going from reason is non clear since there is no exact definition about reason. He indicated that investors behave as a ‘satisfiers ‘ ( Simon, H. ) . They rely merely on the steadfast history and assumed that history will reiterate itself. If the house survived tough times in past it will make so in future. The existent inquiry that a rational investor should be concentrating is how that endurance was made possible. The lone virtue this observation has for reason is that investors are interested in continuity of net incomes. But this continuity should be viewed along with CAPM theoretical account. This prevents the investor from doing the rational optimum determination but instead a determination that meets their demands and satisfies their demands.
Sunk cost false belief: We as worlds are much more willing to claim our successes than we are willing to confront up to our failures. Investors have a inclination to keep on to the bad 1s and sell off the good 1s excessively rapidly. It is really widespread and can do systematic mis-pricing of some stocks. To an mean investor what he has paid for the investment/share is really of import. If he had paid a batch for the investing he will be given to keep on to it. This is simply due to the sums that was paid for it and are in denial in acknowledging that they were incorrectly in their determination. A rational investor would hold sold of a bad investing that was non profitable or did non give a high return as expected. This is besides known as the sunk cost false belief.
Hazard antipathy vs. Tolerable hazard: We found that in instance of our interviewees, they try to measure return based on worst instance scenario, what they can afford to lose. For them the lone anterior chances have to be based on a long period of clip. This observation is consistent with Kahneman and Tversky ( 1979 ) behavioral theory that investors evaluate their investment determinations in footings of their effects on their entire wealth.
Positively biased information: Our interviewees were of the sentiment that fiscal advisors/interviewees behave under the irrational force of greed, for self-preservation because they need to do the sale to maintain their occupation, or to acquire the investors money for their company to travel on. These fiscal interviewees were proven so flawed in this latest economic downturn/recession. Information received from fiscal advisers is ever viewed by investors with incredulity. They think that investors are unduly optimistic about their anticipations ; hence they do non revise their anterior chances on the footing of information received from fiscal interviewees. This is another feature of behavioural finance. If they had a bad experience with these fiscal interviewees and any information coming from there on would be treated as “ lemons ” by the investors. Thus investors are improbable to revise their outlooks about future even if the information coming from these interviewees is relevant. The response is consistent with DLM survey ( Fran & A ; ccedil ; ois D. Sinopia AM, Sandrine Lardic, Karine M ) , which sheds visible radiation on the being of a positive prejudice in interviewee ‘s expectancies. The survey found the ‘herding ‘ and prejudices are two of the chief features of adept behaviour. They concluded that if these two features are non overcome the net incomes prognosis can non be improved.
Bounded reason: Harmonizing to the rational theoretical account, all possible options should be evaluated before an investing determination is made. However, in many state of affairss the bing environment may non let investors to measure all the possible options and these investors have to do their determination in a short period of clip, some times within proceedingss. It seems it ‘s easier to happen determination procedures which consider few options than 1s which consider many options. Some investors do non seek for different options because they feel that sing multiple options evoke uncertainness, and uncertainness reduces motive and committedness ( Baker and Nofsinger 2002 ) . Large organisations by and large experience more rapid investing determination doing procedures than single investors, this is chiefly due to the fact that an organisation are frequently exposed to heavier market competitory force per unit area than persons. The rapid determination doing procedure increases the opportunity to catch new investing chances, but it besides at the same clip increases the investing hazard because it does non give investors adequate clip to measure the cogency of the new investing proposals. Rapid determination doing procedure does non move in conformity with rational investor theory. This observation is consistent with game theories, ‘bounded reason ‘ definition ( Herber Simon ) , which states that most people are partially rational really, ‘satisficers ‘ , they accept what satisfies them. They do non look for optimum solution.
Political orientations that facilitate actions: Political orientations describe both how things are and how they should be, and these two facets are frequently strongly mutualist. Organizational political orientations interrelate closely with determinations, since they make it easier for people to hold on what aims to prosecute. Many organisational investing actions do non follow formal determination processes ; this may propose that organisational political orientations, at least to some extent, causes irrational determination devising ( Basil Blackwell 1982 ) . Political orientations which are clear, narrow, differential, complex and consistent can supply good bases for rational determination devising because they solve a big portion of the pick job ( Brusson, 1989 ) . Belief in a dominant political orientation is strong under normal conditions, and the dominant political orientation is questioned during crisis. When members in the organisation bit by bit lose religion in a dominant political orientation, they replace it with another ; a new dominant political orientation maximizes an organisation ‘s ability to move. The manner how an organisation ‘s dominant political orientation may impact the organisational investing determinations, in some instances this dominant political orientation can lend to an organisation ‘s investing unreason. It is besides likely that political orientation has impact on single investor ‘s investing actions, although the grade of its influence is non to the full known.
A good illustration of personal political orientation would be spiritual association. In some faiths such as Islam, bear downing involvement on loans is prohibited ( The Quran 2:275 ) . Thus a practicing Muslim might non put in a bond market even if the returns in bonds are higher as compared to equity market. This will be a going from reason because reason does non integrate any personal prejudices such as faith ; it focuses on hazard and return.
Fiscal coverage is going more of import as the market is non to the full efficient. In theory, rational investors are believed to utilize fiscal coverage to foretell future value of a house because it is believed that investors may be less biased by utilizing companies ‘ fiscal study before doing any determination. Furthermore, fiscal coverage may cut down inefficiencies of portion monetary values. However, it is suggested that person ‘s attending are limited to some available consequence such as bottom line. This makes fiscal describing market more inefficient and this is consistent in world ( Preda. P. 360 ) . When we asked whether our interviewees study company ‘s fiscal statement before doing any purchasing determination, we found that they were non specifically concerned with an single history but to look over several old ages to see any big alterations in an history from one twelvemonth to the following, involvement in twelvemonth to twelvemonth income versus annual net income looking for about the same net income border. After looking at a glimpse in corporation ‘s fiscal statement, investors will do determination by their analysis which may be biased. Investors may make analysis based on fiscal coverage such as ratio analysis alternatively of merely seeing bottom line ( Net Income ) as index of how corporate is making.
Rational investors are assumed to be risk-averse ( Scott, 2009 ) ; this is besides true. Rational investors will be careful to do purchasing determination. One manner to lower hazard is by utilizing portfolio variegation ( Scott, 2009 ) . It is assumed that the most efficient investing portfolio is the 1 that is to the full diversified. An of import consequence of this attack is that, while the portfolio return equals the leaden mean return of the assets that form it, the portfolio hazard is non, in general, equal to the norm of the hazards of the assets included in it. As such, adding differentiated assets to a portfolio makes it possible, in general, to cut down portfolio hazard in comparing with the mean hazard of the assets which compose the portfolio.
However, our interviewees do non utilize portfolio to take down his hazard ; he believes unless it is educated variegation, to merely distribute your investing in different sectors does non protect one from doing bad investings in each sector. For our interviewees, variegation will ensue in losing more chance and consequence in lower return. Investment variegation suggests that by puting your money in different country, when one country is in bad state of affairs, other country will break off. However, investors have to retrieve market hazard every bit good ; it is one hazard that can non be eliminated. Last lodging market clang is one of many illustrations that will give consequence in all sectors ; most of portions monetary values are traveling down in important per centum. Therefore, our interviewees argued that if investors place their money in proper investings, hazard is lower as money will travel from one country to another to maximise net incomes ; but in world investors are non merely decreasing chances and losing less, when their end was to do every bit much as they can. There is difference between theory and world. One manner to work out this difference is by purchasing different category of assets alternatively of different market portions. In single portions, your return might be large or non at all. Diversified investing really does of import things ; nevertheless, alternatively of diversifying investing at different portions in different companies ; investors can diversify their investing through different capital assets, such as gold or currencies. In fact, when portions monetary values are diminishing, most of the clip gold monetary values will be increasing. The supply and demand theory is taking place in this state of affairs. When economic system is making bad and portions monetary values are diminishing, people will hold more assurance to set their money in existent thing such as gold given that stock is merely a piece of paper that can hold zero value anytime. Another manner to work out this job is by utilizing retroflexing portfolio ; a portfolio that is assorted between portions and riskless plus.
Lack of cognition in Portfolio variegation
Investors ‘ fiscal information and fiscal literacy plays a major function in explicating investor behaviour ( Abreu, 2005 ) . In his paper, Abreu sought to place those factors that influence the degree of fiscal cognition of Lusitanian single investors and to look into the relationship between fiscal literacy and the behaviour of agents, by concentrating on portfolio variegation. The consequences reported lead to reason that there is a general job of a low degree of information amongst single Portuguese investors. In fact, two out of three investors show that they have an deficient degree of specific cognition about fiscal issues. It was besides concluded that married work forces of around 44 old ages of age, with an intermediate or higher educational degree, were those with a higher degree of information. The consequences besides showed that the portfolios of Lusitanian investors were by and large under diversified. The mean figure of assets in the portfolio was 2.6, and a important figure of investors held merely one security. This determination is consistent with the findings of other surveies for European states ( Eymann and Borsch-Supan, 2002 ) , and reveals an even greater job of under-diversification than the US grounds shows ( Barber and Odean, 2000 ) . Our consequences show that fiscal literacy affairs every bit far as variegation behaviour is concerned. It is possible to deduce that both the degree of specific fiscal cognition and the general educational degree of investors have an influence on the figure of assets they held.
Based on our research, it has been concluded that investors are non ever rational due to assorted grounds. The determinations they make are sometimes the consequence of emotional behaviour instead than rational. Behavioral finance outlines the different types of emotional behaviour investors can exhibit which can finally act upon how they make their determinations. It is non uncommon for such behaviour to be such as greed, for illustration in the instance of herd behaviour ; it is human nature to non desire to lose out on an chance. But making something merely because others are making it may non take to a rational determination. At times human nature may do persons to take a peculiar action which may non be in sync with reason.
At times investors may non even be cognizant that they are moving in an irrational mode. Investors believe that the determinations they make are rational even though they may be far from it. They have an internal prejudice of sing themselves as rational which they are incognizant of. Such internal prejudices are hard if non impossible to acquire rid of. As a consequence, these prejudices will act upon investor determinations and they may non ever stop up moving in a rational mode.
Even though investors are non ever rational, investors believe that markets are efficient in the long tally. If this were non the instance, they would non put in the market at all. So although their ain personal behaviour may or may non be rational, they expect that in the long run the market will be rational. Investors have the inclination to see themselves as rational and this is besides what they wish to be reflected in the markets. As a consequence, they believe that the market reflects their rational behaviour and is efficient in the long tally. This may the ground why investors choose to keep investings for the long term instead than the short tally. Investors want to take part in an efficient market and since they believe that the market is efficient in the long tally, they hold investings for the long tally.
In the short tally, irrational investor behaviour can do bugs in the efficient market. Market bubbles are illustrations of short term inefficiencies in the market. But over the long tally, irrational investors are cancelled out and merely the rational investor behaviour will be reflected in the market. This is why investors that view themselves as rational will put for the long tally when they believe their ain rational behaviour will be reflected in the market. Taking this into consideration, it is evident that theory does non needfully stand for world as investors in the existent universe are non ever driven by reason but instead by their personal emotions such as fright and greed.
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