Market Efficiency and Anomalies in Asset Pricing

Abstract

This scholarly article explores the intricate relationship between market efficiency and anomalies in asset pricing, shedding light on the complexities of financial markets. Market efficiency, a cornerstone of modern financial theory, posits that asset prices fully reflect all available information, making it impossible to consistently achieve abnormal returns. However, anomalies, observed patterns of returns that defy the predictions of efficient markets, challenge this notion. This article delves into the theoretical foundations, empirical evidence, and practical implications of market efficiency and anomalies in asset pricing, analyzing factors such as behavioral biases, information asymmetry, and market frictions that contribute to the persistence of anomalies. By synthesizing insights from finance, economics, and behavioral psychology, the article aims to contribute to a nuanced understanding of how markets operate in the presence of both efficiency and anomalies.