Is market really efficient?

Abstract

Market efficiency is the degree to which stock prices reflect all available and relevant information. The theory of market efficiency says that the stock market reacts very quickly to the new information and represents the sum of the information available and choices made by traders and investors. There is a well known an well accepted phenomena, Efficient Market Hypothesis, which states that market prices incorporate all information rationally and instantly but is this really so? Do markets really behave rationally or are driven by fear and greed? The present paper is an attempt to reconcile market efficiency with actual behaviour of investors by taking recent research in the cognitive neuroscience that has been transforming and revitalizing the interaction of psychology and economies, as the base. The present paper is a theoretical work based on the literature reviewed on the efficient market hypothesis. There are some other more promising alternatives to Efficient Market Hypothesis like Behavioral Psychology Approaches to stock market trading. The present paper would try to highlight some of these alternatives and justify whether the Efficient Market Hypothesis hold really true and whether the market is really efficient.