A Moderate Viewpoint to Efficient-Market Hypothesis and Behavioral Finance: the Efficiency of the Behavior of Participants in Transactions

After behavioral finance was introduced, disagreements arose between advocates of behavioral finance and the efficient-market hypothesis. The two financial areas were regarded as contradictory by experts in the profession. In contrast to the prevailing view, it seems that the two approaches are not at odds. Therefore, this paper aims to address these two financial areas through a moderate approach. The present study examined works existing in finance using the analytical-critical method and finally extracted the concept of “market behavior efficiency” through deductive reasoning. Accordingly, the present research's prevailing view states that “at any point in time, the degrees of concepts presented in the efficient-market hypothesis and behavioral finance prevail in the stock market,” influencing the prices. This paper concludes that the market price of any financial asset is composed of three components: producers’ cost (primary cost or value); the effect of investors’ proper reaction to the right and bad news about the firm issuing the financial asset; and the effect of investors’ improper responses to the available information (i.e., the effect of investors’ errors when making decisions). An analysis of the prevailing conditions in a market and factors influential on forming its available assets provides a vital insight into how related officials, domestic and international investors act. So, it brings about outcomes for determining investment strategies and academic literature.