In my opinion, stock prices exhibit certain degrees of inefficiency or irrationality. As there are many irrational behaviors such as overconfidence, investment biases and investment based on emotion in the world, stock price must contain certain degree of irrationality. There are already many public researches on irrational behavior especially investment based on emotion. According to Hirshleifer and Shumway (2003), they find that good moods resulting from morning sunshine may lead to investment.

Clearly investment based on good mood resulting from morning sunshine is an irrational investment. Moreover, data that irrelevant to investment decision such as outcome of football game may also affect investors’ emotion and their decision on investment (Edmans, Garcia and Norli, 2007). Furthermore, Kamstra, Kramer and Levi (2002) report that stock markets fall when traders’ sleep patterns are disrupted due to clock changes with daylight savings time. These kinds of investment decisions are not made by any relevant information about the market.

Therefore, these behaviors must be irrational. Moveover, from my observation, there are some more irrational behaviors in the world. Some people who do not know anything about stock market still try to invest on stocks that are recommended by others.

Usually, those who make recommendations also have little knowledge about stock market. Making investment decisions solely based on opinions from non-professional is clearly irrational. As long as stock markets exist, investors may make mistakes collectively. Undoubtedly, some market participants are demonstrably less then rational.

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Stock prices contain certain degree of inefficiency or irrationality. If market is perfectly efficient, there would be no incentive for professionals to uncover the information that gets so quickly reflected in market prices (Grossman and Stiglitz, 1980). However, according to Burton (2003), whatever patterns or irrationalities in the pricing of individual stocks that have been discovered in a search of historical experience are unlikely to persist and will not provide investors with a method to obtain extraordinary returns.


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