Volume : 4, Issue : 8, August - 2015

Anomalies Challenging EMH: A Review of Empirical Work

Dr. Saloni Gupta

Abstract :

<p>In the recent years evidence which is contrary to the efficient market hypothesis has also surfaced in the finance literature, which is labelled as ‘anomaly’. The documented anomalous price behaviour included apparent under reaction, apparent over reaction and puzzling variation of prices with day-of-the-week effect, size effect, dividend yield anomaly, earning yield anomaly etc. While some anomalies, such as those explained in relation to Dividend Yield, Market Capitalization, Price Earnings etc might be rightly said to be pointing at the inappropriateness of CAPM, the observance of Intra-Month, Weekend and Intraday ‘seasonals’ point out a general weakness of all asset pricing models or imperfections in the trading process itself. Many of these anomalies have also been described as fads or psychological effects or irrational bubbles by various researchers; though many others don’t agree to these descriptions. According to them, Market Efficiency has, by and large, survived the challenge from the literature on experimental psychology and long-term return anomalies. They argue that these anomalies can be explained within the oader framework of efficiency, with some finetunings in the models and the data. Some of the key researches in this context are being iefly reviewed below.</p>