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This paper offers a comprehensive exploration of fundamental concepts in behavioral finance and their repercussions on financial markets. Initially, it scrutinizes the efficient market hypothesis, highlighting disparities between its idealized assumptions and the complexities of real-world markets. Subsequently, it investigates the impact of loss aversion on investor behavior and its propensity to generate market anomalies. Moreover, the paper delves into the influence of framing theory and the endowment effect on investors' perceptions and decision-making processes, elucidating how cognitive biases can distort market dynamics. By synthesizing these theories, the paper presents a coherent framework for analyzing markets through a behavioral finance lens. It asserts that investors stand to benefit from a thorough comprehension and utilization of behavioral finance principles, enabling them to make more reasoned and efficacious investment choices. It concludes that investors can enhance their decision-making by embracing the principles of behavioral finance, thus contributing to a more rational and efficient market overall.
Xiaomeng Pei (Thu,) studied this question.
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