Competing Theories of Financial Anomalies


Journal Article (Review)

We compare two competing theories of financial anomalies: "behavioral" theories built on investor irrationality, and "rational structural uncertainty" theories built on incomplete information about the structure of the economic environment. We find that although the theories relax opposite assumptions of the rational expectations ideal, their mathematical and predictive similarities make them difficult to distinguish. Even if irrationality generates financial anomalies, their disappearance still may hinge on rational learning - that is, on the ability of rational arbitrageurs and their investors to reject competing rational explanations for observed price patterns.

Full Text

Duke Authors

Cited Authors

  • Brav, A; Heaton, JB

Published Date

  • January 1, 2002

Published In

Volume / Issue

  • 15 / 2 SPEC.

Start / End Page

  • 575 - 606

International Standard Serial Number (ISSN)

  • 0893-9454

Digital Object Identifier (DOI)

  • 10.1093/rfs/15.2.575

Citation Source

  • Scopus