her notable asset pricing bubbles followed by major market reversals have occurred in various parts of the world since the Tulip Bulb Bubble in the first-half of the seventeenth century (Malliaris, 2005).
There continues to be widespread disagreement between supporters of the efficient markets hypothesis and behavioral finance theorists as to the valid explanation of instances of long-term asset price volatility followed by major market reversals (Mishkin & White, 2002; Shiller, 2000). This study investigated long-term asset price volatility and associated major market reversals in an effort to determine the causal explanations for such phenomena, wherein the alternative explanations are as follows:
An absence of crucial information that is accessible to investors creates a situation in which rational decision making by investors leads to otherwise unexplainable outcomes.
Irrational decision-making behaviors on the part of investors lead to long-term volatility in asset pricing and the resulting market reversals.
Research questions were investigated in relation to the problem. Hypotheses were tested in relation to each research question.
Two research questions were investigated through the conduct of this study. The research questions investigated were as follows:
How effective is the efficient market hypothesis in explaining equity stock prices during a bubble development phase of the asset pricing phenomena characterized by long-term volatility and a subsequent market reversal?
How effective is behavioral finance theory in explaining equity stock prices during a bubble development phase of the asset pricing phenomena characterized by long-term volatility and a subsequent market reversal?
Research hypotheses were tested in relation to each of the research questions investigated through the conduct of this study. The research hypotheses tested were as follows:
H0 (null): Analysis of the price volatility...