Question

explain breifely the relationship between finacial crisi and finacial behaviour and the effeicent market hypothesis and the finacial behaviour with example

Answer 1

Financial crisis is a situation where there is a widespread panic in the entire economy and investors are taking out on their long positions and they are highly sceptical of investing into the economy, as they are sceptical that their investment will fall further.

This type of financial behaviour is called panic so when there is a financial crisis, there is lot of blood on the street and there is a lot of panic among investors to get their money out in such situations to avoid losses and capital erosion, because they are terrified that they will lose out on their investment because the fall is highly Fierce and the prospect of the economy is also looking bleak.

Efficient market hypothesis believes that the market is fully reflective of the past price whether it is publicly available information of privately available information and it is assumed that the markets are always rational and efficient and investor would never beat the market rate of return.

financial behaviour of an investor indicates that he is not a rational and he will always be driven by his behaviour bias, so he will make decisions when he feels like he can beat the market rate of return and he will always believe that through investing actively, and he will also arbitrage and hedge, which are not the fundamentals of financial behaviour in efficient Markets. An Investor would also be believing upon technical analysis and fundamental analysis which are to be ignored in an Efficient market because they will not help in generation of a higher rate of return.