The scholars and financial markets lost trust in Efficient Market hypothesis after the emergence

of Behavioral Finance Theory. The Behavioral finance contradicted the previous approach,
Shefrin’s (2001) terms, Behavioral Finance is ‘the study of how psychology affects financial
decision making and financial markets’, and, according to Thaler (1993) it is ‘simply ‘open-
minded’ finance’. The main thing in Behavioral Finance is Heuristics which are patterns
regarding how people behave. Heuristics is a word derived from the ancient Greek work ευρίσκω
(= discover) and refers to desirable result by employing smart guesswork instead of the formulas.
This involves simple techniques for problem solving known as rules-of-thumb or shortcuts which
help investors to make decision.
The investing markets are efficient in a way that all individuals will have access to available
information. The specific theoretical model has generated considerable debate in terms
of two concepts that are access and availability. Everyone gets access to investing information
theoretically but in real most of them don’t get it. Different people access information at different
time due to various reasons and even people who are involved in stock market analysis and
monitoring are not c1ompetent to fully elaborate the information. There is an additional
weakness in Efficient market hypothesis that is information is available to limited group of
investors or speculators before it becomes available to general public. An example is also
mentioned of Greek financial crisis that the appeal to International Monetary Fund took place
before spreads had increased and the individuals who had access to this information took
advantage of this. The way available information is communicated has also great emphasis
because it can impact on the decision making.
Fundamental and technical analysis are the methods used for analysis of the securities and make
investment decisions. The investors have to employ an analysis to understand which companies
to be included in portfolio for investment. The technical analysis has got recognition in Western
Stock Market but it has produced criticism on weak efficiency.
According to Efficient Market hypothesis the emphasis should be on current information and
prices for investment processes and not on forecasting of prices through study of past market
data. The EMH treats individuals involved in investment and stock market as uniform with no
decisive impact on investing behavior while Behavioral Finance emphasizes on the correlation of
emotional reactions with market events and asserts that emotions are the
backbone of its theoretical framework. Investing has been changed over the period of time and
new investment tools, rules and culture has been introduced which greatly affected investing
profiles while EMH has not changed over its approach to investment.
In conclusion, the conventional considerations of EMH need to be reinforced and there is a need
of including framework for Behavioral finance which focuses on investors behavior.
Efficient Market Hypothesis has been very popular among investors but its potential
consequences are serious for investors to look into while Behavioral Finance due to its
complicated and innovative nature is not accepted by majority of community but the investing
decision making is facilitated by many considerations in Behavioral finance from other
disciplines and this can help in establishing its status over traditional financial paradigms.