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Market Activity & Volatile Price Rise Review of Literature Introduction to t

The purpose of this study was to assess the comparative explanatory validity of the efficient market hypothesis and behavioral finance theory in explaining market activity characterized by volatile price rises, reversal, and recovery. The study compared the capacity of the alternative explanations in relation to three bubble-crash-recovery episodes. The three instances of long-term price volatility and ensuing major market reversal in equity stock markets investigated were as follows:

The asset stock market bubble and major market reversal that occurred in Japan in the 1980s

The Internet IPO stock market bubble and major market reversal that occurred in the United States in 2000

The asset stock market bubble and major market reversal that occurred in Saudi Arabia in 2003 and 2004

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?

This chapter reviews background and theoretical literature related to asset bubble-crash-recovery episodes, the efficient market hypothesis, and behavioral finance. Additionally, research studies related to the purpose of this study are reviewed in this chapter.

Review of Background and Theoretical Literature Related to Asset Bubble-Crash-Recovery Episodes

Over the centuries during which organized asset trading has occurred, there have been several spectacular bubbles (rapidly increasing asset prices that surpass supportable values for the underlying assets), dramatic market cr...

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Market Activity & Volatile Price Rise Review of Literature Introduction to t. (1969, December 31). In LotsofEssays.com. Retrieved 21:42, July 01, 2022, from https://www.lotsofessays.com/viewpaper/1704803.html