“The events of this year have shown that behavioral finance is the best explanation of market behavior. The S&P/ASX 200 index started the year at 6,690 but by 20 February was up to 7,162 then down to 4,156 by 23 March after which it rebounded to 6,148 by 10 June. It is now obvious that it will be down again by the end of the year. This can’t be representative of an efficient market.”

Your task is to write a critical essay evaluating the arguments for and against the Efficient Markets Hypothesis (EMH) and behavioral finance. You should include a discussion of the above quote. The essay should also include a discussion of the work of Nobel Laureates Eugene Fama and Richard Thaler.

You will need to utilise existing literature (scholarly journals) on market efficiency and behavioral finance as well as real world examples to support your conclusion.

Please provide answer based on the structure below.

Introduction

1- Brief background to market efficiency, behavioral finance and the quote.

2- Discuss research (e.g. journal articles) and real world examples (e.g. fund manager performance) that support or disagree with market efficiency.

3- Discuss research (e.g. journal articles) and real world examples (e.g. behavior of markets) that support or disagree with behavioral finance

4. Conclusion on market efficiency and the validity of the quote given.