Standard financial models assume that capital markets are fully efficient, which makes asset prices unforecastable. In contrast, the behavioral finance argues that markets may not be efficient, at least in the short term, given the limits to arbitrage. Combining both strands of literature, our...

Standard financial models assume that capital markets are fully efficient, which makes asset prices unpredictable. In contrast, the behavioural finance argues that markets may not be efficient, at least in the short term, given the limits to arbitrage. Combining both strands of literature, our...

This paper addresses the long-standing question of whether asset prices are predictable. The common view holds that daily prices fully incorporate all available information, and therefore price changes are unforecastable. This conclusion does not necessarily hold when the vast bulk of market...

This paper address the long-standing question of whether asset prices are predictable. The common view holds that daily prices fully incorporate all available information, and therefore price changes are unforecastable. This conclusion does not necessarily hold when the vast bulk of market...

We investigate a shift in market norm from an efficient state, where prices are unpredictable, to the state where overconfidence spreads by contagion. Overconfidence means investors will buy more stocks that have enjoyed recent gains. It suggests that price shocks in a recent past may explain...

We develop an adaptive learning game to rethink the efficient markets hypothesis using the stochastically stable state of this game to characterize a richer set of market states than those suggested by the hypothesis. In particular, the model predicts that the economy may follow a path leading...