In this era of development and competency, every field has been evolved. However, due to the competition in every market, it is necessary to realize the ups and downs of the related industry and market, so that all the clashes and losses are avoided. Consequently, market efficiency and behavioral finance influence performance. The term market efficiency refers to the extent to which the prices of markets reflect the relevant available information. This term helps to analyze the investors that they cannot outperform because of the market anomalies. Additionally, the term behavioral finance enables to analyze the market anomalies, for instance, the rise or fall in the stock price. Being a researcher at an actively managed equity fund it can be helpful to analyze these facts in the context of market efficiency and behavioral finance. In this regard, this essay is proposed to highlight these concepts by referring to the sayings of Fama and Buffett.
This essay aims to give a critical analysis by evaluating the quotes of Fama and Buffett and the implications of these for the funding. However, the modern area of financial study can be a better understanding by exploring the efficient market hypothesis, market anomalies, and behavioral finance. The theory about the market hypothesis is most crucial in the study of finance. This theory was proposed by Eugene Fama after the mid of the 19th century. This theory is revised and has been tested for decades. However, one of its quotes is also discussed below.
The term market efficiency enables to measure the capabilities of the market to incorporate information. However, this provides the maximum number of chances to both sellers and purchasers of securities so that effective transactions can be made without the increase in transaction costs. Another important term is behavioral finance and it is also considered as a subfield of behavioral economics. It comprises of psychology based theories that explain the details of the stock market. In terms of behavioral finance, it can be realized that the decision of investment made by any individual and the market outcome influence due to the characteristic of the market participants and information structure as well.