Behavioral Anomalies for Financial Systems

Behavioral Anomalies for Financial Systems

From time to time, financial systems experience unexpected anomalies that highly contribute to mispricing of securities. One of the factors that have been closely associated with these anomalies is behavioral anomalies. Various studies have sought to establish how behavioral anomalies various aspects of an efficient market, like stock pricing. The above-mentioned anomalies seem to contradict most of the common modern day economic theories that are conventionally used to predict the logical market tendencies. The most common behavioral anomalies in the equity markets are the January effect and day of the week effect. It is in this context that this paper seeks to provide a detailed exposition of how the aforementioned anomalies bring about pricing anomalies in the stock market.

The January Effect

This phenomenon brings forth the argument that the return on stock investment is much higher in January than in other months of the year. Most economists argue that this anomaly is mainly due to the price pressures that v

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