Financial Markets and Institutions: Stock Market Efficiency

The $$ I remains one of the cornerstones of modern finance theory. It implies that, on average, asset prices are approximately

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e their intrinsic

values. Many events in the real world seem inconsistent with the hypothesis, which has spurred a growing field called $$ finance, that borrows insights from psychology to better understand how irrational actions can be sustained over time. This theory considers two key points. First, it is often difficult or risky for traders to take advantage of mispriced assets. Second, it considers why mispricing occurs. Investors and managers behave differently in down markets than they do in up markets and individuals tend to $$ their true abilities.

If the stock market is $1.$ it's a waste of time for most people to seek bargains by analyzing published data on stocks. Stock prices will already reflect all publicly available information and these stocks will be $$ priced. However, an investor should still be careful when selecting stocks for his or her portfolio. Most importantly, the portfolio should be $.$