Page 23 - CAPE Financial Services Syllabus Macmillan_Neat

UNIT 1
MODULE 2: PORTFOLIO MANAGEMENT AND INVESTMENT (cont’d)
SPECIFIC OBJECTIVES
Students should be able to:
13. explain the relationship between
behavioural finance and efficient
market hypothesis;
14. explain the critical assumptions
underlying capital market theory;
CXC A38/U2/16
CONTENT
Examples of evidence against:
(a) small firm effects;
(b) market overreaction;
(c) excessive volatility;
(d) January effect; and,
(e) mean reversion.
Relationship between behavioural finance and
efficient market hypothesis.
The application of concepts of social sciences
such as anthropology, sociology and
particularly psychology as compared with
classical market theories to understand the
behaviour of security prices in the market.
Critical assumptions:
(a) All investors are efficient investors.
(b) Investors borrow/lend money at the
risk-free rate.
(c) The time horizon is equal for all
investors.
(d) All assets are infinitely divisible.
(e) No taxes and transaction costs.
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