Efficient Market Hypothesis and Behavioural Finance: A Review of Literature

In this paper, we reviewed the efficient market hypothesis and the theory of behavioural finance with some past scientific research work relevant to these theories. Market efficiency refers to the speed and accuracy with which current market prices reflect investor expectations, such that mispriced securities are rare. This study, which is essentially a literature review, intends to explain the behaviour of stock prices with respect to information. It considers efficiency in relation to block transactions, new issues, stock splits and mutual fund performance with a consideration of empirical models that have found extensive use in the EMH research. Also, the issue of information adequacy and redundancies of annual financial reports (AFRs) in Nigeria is also discussed. Most of the evidence obtained from scholarly works on the EMH is consistent with the strong form but cases where market anomalies exist to depart from EMH lend credence to the impact of imperfections of market conditions. As a result, we conclude with a case for Behavioural finance which studies how cognitive or emotional biases create anomalies in market prices and returns