The Contradiction Between Asset Bubbles and Efficient Markets
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School of Business | Bachelor's thesis
AbstractThis literature review clarifies the theories behind market efficiency, and why the existence of asset bubbles is in contradiction with them. Market efficiency and asset pricing have been studies for many decades, but the results still divide economists. This literature review addresses the arguments in favor and against market efficiency. I will analyze the results from research regarding the topic, and also ad-dress the difficulties when testing market efficiency. This literature review explains why markets are not strong form efficient and gives also arguments against semi-strong and weak forms of market efficiency. This review also addresses the importance of continuing studying behavioral economics and finance, since the past has shown the magnitude of the impact to global economy caused by asset bubbles when they concern also the regular people instead of just investors. It is wrong to think that investors won't repeat the mistakes done in the past, as is shown with examples from real events.
Thesis advisorMurto, Pauli
market efficiency, stock markets, asset bubbles, anomalies, housing markets, efficient market theory, random walk