Criticisms of the EMH and the rational market theory were arising as far back as the early 1970s. These critics were noting events that could not be explained by the EMH. These unexplainable results were termed anomalies. Four basic types of anomalies have been identified: calendar anomalies, value (fundamental) anomalies, technical anomalies, and other anomalies. Contemporaneously with the identification of financial market anomalies, a new theory of financial markets arose that has been termed behavioral finance.
a. Discuss the four basic types of anomalies.
b. Define the concept of behavioral finance.
c. What are some of the most the most common cognitive biases in finance?