Efficient Market Hypothesis V/S Behavioural Finance

Abstract

The present paper reviews two fundamental investing paradigmsi.e.efficient market hypothesis (EMH) and the theory of behaviouralfinance(BF), which has a substantial impact on the manner investors tend to develop their own strategies of investing funds. The study elaborates on the inherent irrationality of the theory of efficient market, and it discusses the potential reasons for its recent decline, arguing in favor ofbehavioural finance. In addition, the study highlights that the theory of behaviouralfinance, which endorses human behavioral and psychological attitudes, should become the theoretical framework for successful and profitable investing.