Review on efficiency and anomalies in stock markets

Kai Yin Woo, Chulin Mai, Michael McAleer, Wing Keung Wong*

*Corresponding author for this work

Research output: Contribution to journalReview articleAcademicpeer-review

28 Citations (Scopus)


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.

Original languageEnglish
Article numbereconomies8010020
Issue number1
Publication statusPublished - 12 Mar 2020

Bibliographical note

Funding Information:
The third author wishes to thank the Australian Research Council and the National Science Council, Ministry of Science and Technology (MOST), Taiwan. The fourth author acknowledges the Research Grants Council of Hong Kong (Project Number 12500915), Ministry of Science and Technology, Taiwan (MOST, Project Numbers 106‐2410‐H‐468‐002 and 107‐2410‐H‐468‐002‐MY3), Asia University, China Medical University Hospital, and Hang Seng Management College. The fourth author would also like to thank Robert B. Miller and Howard E. Thompson for their continuous guidance and encouragement.

Publisher Copyright:
© 2020 by the authors.


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