Die Zeitschrift für stud. iur. und junge Juristen - Iurratio

Schwerpunkt
Behavioural Finance and Financial Markets Regulation
von Georgia Roussou (München / Athen)
Georgia Roussou hat an der Universität Athen Rechtswissenschaft studiert, einen LL.M. im Handelsrecht an derselben Universität erworben
und studiert gerade im Aufbaustudiengang „Europäisches und Internationales Wirtschaftsrecht“ an der LMU. Seit Oktober 2012 ist sie Stipendiatin
der Universität Athen.
Dieser Aufsatz ist eine gekürzte Fassung der Seminararbeit, die im Rahmen des Seminars „Behavioural Finance and European Financial Markets
Regulation“ am European University Institute geschrieben wurde.
Der zweite Teil dieses Artikels erscheint in Iurratio 4/2013.
A. The relationship between EMH and Behavioural
Finance
Although throughout the history of economic thought the excessive
reliance of economics on assumptions and the development of hypotheses
had been criticized 1 , it cannot be ignored that the categorization
of the observed phenomena and the formulation of conclusions
is part of the methodology of every social science. One example of
an economic theory relying on assumptions is the rational choice
theory, a model used to explain the social and economic behavior
of human beings. The basic insight of this theory is that people are
rationally self-interested, which means that they act as if they would
be balancing costs and benefits in order to select what they think
corresponds to their best interests 2 .
Related to the rational choice theory is the Efficient Market Hypothesis
(EMH), introduced by Eugene Fama in the year 1970. This theory
is nothing more than an economic model, which assumes that the
market is naturally efficient and that individuals are perfectly rational.
Their decisions rely on complete and homogenous information
sets, which allow them to predict future market returns. Under these
circumstances, it is impossible for the participants in the economic
procedure to beat the market by using preferential information as
this information has already been embed in the market’s structure.
By this way the price of the products in an efficient market reflects
all relevant information and the stocks always trade at their fair value
on stock exchanges. These assumptions lead to the conclusion that all
the participants make financial decisions not only by starting off the
same sets of information but also by thinking rationally with the core
aim of maximizing their profit. According to the EMH, information
has a great importance due to the capability of market players to
acquire and evaluate the facts by the same rational way, a capability
which leads them to the best possible financial decisions.
The EMH had met an important acceptance and had also greatly influenced
academics until the 1990s, when the classical financial theory
was disputed by the findings of behavioural economists. More
specifically, the strong empirical evidence and theoretical doubts
formulated by a notable number of scholars led to the development
of a new economical approach (Behavioural Finance), which questions
central principles of the EMH, such as the conception of the
homo economicus and its perfect rationality. However this theoretical
1 Rappaport, in: Journal of Economic Methodology 1996, 215.
2 McEachern, Economic Principles, A contemporary Introduction, 9 th ed., page 6.
dispute has not signaled the absolute reject of the EMH, which is in
essence up to the present still valid.
The imperfections of markets and the deviation of market participants
from those decisions which would allow them to maximize
their profit were observed years earlier than the formulation of behavioural
finance 3 . But it was not only these observations, but also
concrete proposed psychological explanations of human behaviors
which led to the dispute of the EMH. Only when economists became
aware of certain advances made in the field of cognitive psychology,
they were able to compare the economic models of rational behavioral
to the cognitive models of decision making under risk und
uncertainty. H. Shefrin, who is considered as one of the founders of
Behavioural Finance, put this event in early 1980s 4 , when D. Kahneman,
P. Slovic and A. Tversky first published a paper 5 , which indicated
that there are certain reasons for the deviation of the human
behavior from the proposed perfect rationality of EMH’s supporters.
Not only the scholars mentioned above, but also others subsequent
academics such as J. Arlen, M. Spitzer and E. Talley stand for that “a
remarkable number of experimental and empirical evidence suggests
that people’s behavior deviates from the traditional account, often in
systematic ways” 6 or that “everyone in our days recognizes that there
is a large gap between the manner in which economists traditionally
assume that people think and act, and the manner in which people actually
think and act” 7 .
At this point, it is important to clarify the logical connection of economic
theories and financial models to the legal scholarship. At first
glance one would assume that the legal scholarship has limited relationship
with the teachings and the suggested models of economics,
whereas there could be skepticism to the principle that the legislator
should take into account the economic doctrines. But it seems evident
that economics can offer useful indications for the legal policies
not only to the fields of regulated industries or to antitrust law as it is
widely believed. More specifically, the economic discipline can provide
a solid and circumstantial basis concerning two things: the reaction
of people to everyday situations, as well as their response to legal
rules and sanctions 8 . The use of the findings of economics for this
purpose can complement or under circumstances replace the intui-
3 Walker, in: Hong Kong Law Journal 2006, 481 (483, 484).
4 Walker, id.
5 Kahneman, Slovic, Tversky, Judgement Under Uncertainty: Heuristics and Biases, 1 st ed.
6 Arlen et al., in: USC Law and Economics 2001, 29 (32).
7 Prentice, in: Duke Law Journal 2002, 1399 (1413).
8 Cooter, Ulen, Law & Economics, 6 th ed., page 3.
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Iurratio
Ausgabe 3 / 2013