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Review on Efficiency and Anomalies in Stock Markets

Author

Listed:
  • Kai-Yin Woo

    (Department of Economics and Finance, Hong Kong Shue Yan University, Hong Kong 999077, China)

  • Chulin Mai

    (Department of International Finance, Guangzhou College of Commerce, Guangzhou 511363, China)

  • Michael McAleer

    (Department of Finance, Asia University, Taichung 41354, Taiwan
    Discipline of Business Analytics, University of Sydney Business School, Sydney, NSW 2006, Australia
    Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam, 3062 Rotterdam, The Netherlands
    Department of Economic Analysis and ICAE, Complutense University of Madrid, 28040 Madrid, Spain)

  • Wing-Keung Wong

    (Department of Finance, Fintech Center, and Big Data Research Center, Asia University, Taichung 41354, Taiwan
    Department of Medical Research, China Medical University Hospital, Taichung 40447, Taiwan
    Department of Economics and Finance, Hang Seng University of Hong Kong, Hong Kong 999077, China)

Abstract
The efficient-market hypothesis (EMH) is one of the most important economic and financial hypotheses that have been tested over the past century. Due to many abnormal phenomena and conflicting evidence, otherwise known as anomalies against EMH, some academics have questioned whether EMH is valid, and pointed out that the financial literature has substantial evidence of anomalies, so that many theories have been developed to explain some anomalies. To address the issue, this paper reviews the theory and literature on market efficiency and market anomalies. We give a brief review on market efficiency and clearly define the concept of market efficiency and the EMH. We discuss some efforts that challenge the EMH. We review different market anomalies and different theories of Behavioral Finance that could be used to explain such market anomalies. This review is useful to academics for developing cutting-edge treatments of financial theory that EMH, anomalies, and Behavioral Finance underlie. The review is also beneficial to investors for making choices of investment products and strategies that suit their risk preferences and behavioral traits predicted from behavioral models. Finally, when EMH, anomalies and Behavioral Finance are used to explain the impacts of investor behavior on stock price movements, it is invaluable to policy makers, when reviewing their policies, to avoid excessive fluctuations in stock markets.

Suggested Citation

  • Kai-Yin Woo & Chulin Mai & Michael McAleer & Wing-Keung Wong, 2020. "Review on Efficiency and Anomalies in Stock Markets," Economies, MDPI, vol. 8(1), pages 1-51, March.
    • Handle: RePEc:gam:jecomi:v:8:y:2020:i:1:p:20-:d:331591
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