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Law, Finance, and the Investors Psychological Motive of Control
Published online by Cambridge University Press: 17 February 2009
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A recent survey by David Hirshleifer on investor psychology and asset pricing opens with a short story describing what might have happened to asset-pricing theory, had the founding fathers of modern finance not focused on rationality as the core of their thinking about financial markets, but, instead, followed Adam Smith, Irving Fisher, John Maynard Keynes and Harry Markowitz, who thought that psychology had a large impact on the outcome of financial markets. Had this path of theorizing been taken, today there might have been an influential school at the University of Chicago advocating the Deficient Markets Hypothesis and a Stanford psychologist would have become the inventor of a prominent asset-valuation model, the so-called DAPM (Deranged Anticipation and Perception Model).
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References
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