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A Critique of Behavioral Finance

By Dr. Hassan Shirvani—The recent global financial crisis has raised serious questions about the rationality of the securities markets.  In rational markets, prices tend to closely track their fundamental values, so that there is little or no chance of getting price bubbles.  During the run-up to the recent crisis, however, many asset prices, including those in the housing sector, seemingly deviated from their correct values, resulting in subsequent financial crashes around…

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