**4. Behavioral Finance**

There are many di fferent areas in Behavioral Finance, including the topics discussed in the next section. Readers may refer to Wagner and Wong (2019) and the references therein for more information. Here, we only discuss a few.

#### *4.1. Behavioral Finance and Market E*ffi*ciency*

Behavioral Finance is a new approach to financial markets that has emerged, at least in part, in response to the di fficulties faced by the traditional paradigm. In broad terms, it argues that some financial phenomena can be better understood using models in which some agents are not fully rational. More specifically, it analyzes what happens when we relax one, or both, of the two tenets that underlie individual rationality (Barberis and Thaler 2003). Behavioral Finance is the study of the influence of psychology on the behavior of financial practitioners and the subsequent e ffect on markets. In any situation that causes market ine fficiency, as long as there exist su fficient explanations that can help to explain any of the anomalies or there is any way to maintain the relationship between information and stock price, it is the weak-form market e fficiency, at least (Mullainathan et al. 2005). If Behavioral Finance makes it, then Behavioral Finance supports EMH. Since Behavioral Finance studies the behavior of investors and helps explain that market anomalies are caused by investors, it means that Behavioral Finance supports EMH when the below three assumptions of Fama (1965a) might not hold:

#### **Assumption 1 (A1).** *Rational investor.*

**Assumption 2 (A2).** *Independent deviation from rationality.*
