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Abstract
The efficient markets theory reached the height of its dominance in academic circles around the 1970s. Faith in this theory was eroded by a succession of discoveries of anomalies, many in the 1980s, and of evidence of excess volatility of returns. Finance literature in this decade and after suggests a more nuanced view of the value of the efficient markets theory, and, starting in the 1990s, a blossoming of research on behavioral finance. A survey was conducted among equity investors Tamilnadu (India) to trace the behavioural biases of the investors. Reponses from 519 respondents were analysed and it was found that 81% of the respondents had anchoring bias , 44% of them had narrow framing bias and 30% of the respondents had Ambiguity aversion bias. This paper attempts to suggest some measures to overcome those biases
Key words: Efficient Market Hypothesis, Behavioural Finance, Biases, Anchoring, Ambiguity, Narrow Framing.
Introduction
Withering of 'Efficient Market Hypothesis':
During 1970's, a premise 'Efficient Market' was convincingly established by Eugene Fama. In a dynamic economy there will always be new information which causes intrinsic values to change over time. As a result, people who can consistently predict the appearance of new information and evaluate its effects on intrinsic values will usually make larger profits than can people who do not have this talent. The existence of these people would -insure that actual market prices are, on the basis of all available information, best estimates of intrinsic values." Fama gave to this state of affairs the name -Efficient Market" . ?Market efficiency' became the model of market behavior accepted by the majority of academicians and a good number of professionals.
An incongruity between the price and the value of a security provides an opportunity for the investor to make profit. Most individuals who trade stocks and bonds do so under the assumption that the securities they are buying or selling are worth more or less than the prices that they are paying. If markets are truly efficient and current prices fully reflect all pertinent information, then trading securities in an attempt to surpass a benchmark is a game of luck, not skill. Based on the amount of information the investors in the market use in their valuations three...