Behavioral Finance : A New Paradigm in Finance

Abstract

By the end of 1980s, Efficient Market Hypothesis(EMH) and the rationality were the main financial studies and researches basis . According to The efficient market hypothesis (EMH) stock prices fully reflect all available information in the market, but at the end of 1980s, January effect , the month days effect, bubbles ,the transactions of financial firms for the price more than Net Asset Value (NAV) , size effect, the prediction power by financial ratio, Initial Public Offering (IPO) effect, over and under reaction, mean reversion, cause to make new point of view in finance which was called Behavioral Finance. The point of view explains the people while deciding are under the influence of personality, experience, judgment, and special social relations, these terms can cause behavioural biases. the aim of this paper is review behavioural biases in investor decision makers . the investigations show that behavioural biases are significant now because some analyst and investors by the assumption that the financial markets are efficient and treating other investors rational try to analyze and counsel and invest in by the true consideration of behavioural finance.