The substantial anomalies in financial markets. It shows

The effective
marketplace theory remained major presented using Markowitz now day 1952 in was
named by fama in the year 1970 which assumed that the financial market include
all information regarding the public and assert the share prices show all
information that is relevant to it. In the field of finance a lot of emphasis
is there on increase is still evident there in substantial anomalies in
financial markets. It shows that the principle of rational behaviour on EMH may
be failed researchers have taken keen interest in this area and they are
looking for and working to include human behavior and its impact on this
theory. According to the recent theory the present assumption have been proved
inconsistent of the individual behaviour. Thus the anomalies of the recent
portfolio models have made the development process much faster what is called
behavioral finance. The behavioral finance literature can be dividing into two
types, the identification of anomalies the efficient market hypothesis that
behavior models may explain and the identification of undivided investors
behaviors or biased old economic theories of inconsistency in rational
behavior. Behavioral finance thus challenges the efficient market point of view
that how the investors perceive the already available information. It proves
helpful in understanding the priorities of individual’s investors. It helps the
investors to think pragmatically and make decision proving fruitful for their
business.

Defined the
behaviors finance as the study of the influence of psychology on the behavior
of finance practitioners and the subsequent effect on markets. Behavior finance
aims at finding the reasons how and why the market is in efficient and this
makes this interesting

Behavioral
researcher barbeers and thaalor have described behavioral finance research in
the following way ”we have now begin the importance job of trying to document
and understand how investors both amateurs and professionals make their
portfolio choices until recently such research was notably absent from the
repertoire of financial economists perhaps because of the mistaken belief that
assets pricing can be modelled without knowing anything about the behavior of
the agent in the economy.

This paper puts
forth a question what can be learnt by studying behavior finance? In order to
ask such question this research paper reviews the efficiency of market
hypothesis theory and then explains the prospect theory. The other section
shows different psychological and sociological principles that consist of the
basics of the behavioral finance.

The efficient
market hypothesis foundation and limits standard finance is the body of
knowledge built on the pillars of random principles of Modigliani and miller
the portfolio principle of Markowitz the portfolio principles of Markowitz the
capital asset pricing theory of sharps and the option pricing theory of black Scholes
and Merton so the efficient market hypothesis is the most vital financial
theory