Compare and Contrast Capital Market
Contrast to Capital market research and Behaviour research
Positive theories explain and predict the behaviour of users of accounting information: i)Reactions of investors to accounting information ii)Association between accounting numbers and share prices
Capital market research and Behaviour research both positive theories.
Research question: Capital market research investigates the impact of accounting information (especially earnings) on share prices. It is concerns with investor reactions to accounting information. Behaviour research explains how to use and process the accounting information.
Objective: The main objective of capital market research is to examine relationship between accounting information and share prices. Behaviour research’s main purposes are to model the decision-making and uncovering the cognitive and social biases.
Disciplines: Capital market research refers to Economics and Finance, and behaviour research refers to Psychology.
Focus: Refer to decision-making, capital market research at aggregate level. Behaviour research specifically on users, at individuals or groups level.
Theories: Capital market research is based on rational choice theory and expected utility theory. Behaviour research is based on prospect theory, belief-adjustment model, and functional fixation hypothesis.
Assumptions:
Capital Market Research is based on ‘homo economics’:
Semi-strong form of market efficiency – share prices incorporate information in a timely and unbiased manner， reflect all publicly available information.
Decision maker: rationality; utility maximization-optical solutions; solutions found by applying mathematical models.
Behaviour research is based on ‘homo heuristics:
i) Investors are not rational -Bounded rationality, ii)Satisfactory, rather than optimal solutions iii) Investors suffer from various cognitive, affective, and social biases iv)Markets are weakly efficient, inefficient
Market efficiency: Capital Market Research:
Positive theories explain and predict the behaviour of users of accounting information: i)Reactions of investors to accounting information ii)Association between accounting numbers and share prices
Capital market research and Behaviour research both positive theories.
Research question: Capital market research investigates the impact of accounting information (especially earnings) on share prices. It is concerns with investor reactions to accounting information. Behaviour research explains how to use and process the accounting information.
Objective: The main objective of capital market research is to examine relationship between accounting information and share prices. Behaviour research’s main purposes are to model the decision-making and uncovering the cognitive and social biases.
Disciplines: Capital market research refers to Economics and Finance, and behaviour research refers to Psychology.
Focus: Refer to decision-making, capital market research at aggregate level. Behaviour research specifically on users, at individuals or groups level.
Theories: Capital market research is based on rational choice theory and expected utility theory. Behaviour research is based on prospect theory, belief-adjustment model, and functional fixation hypothesis.
Assumptions:
Capital Market Research is based on ‘homo economics’:
Semi-strong form of market efficiency – share prices incorporate information in a timely and unbiased manner， reflect all publicly available information.
Decision maker: rationality; utility maximization-optical solutions; solutions found by applying mathematical models.
Behaviour research is based on ‘homo heuristics:
i) Investors are not rational -Bounded rationality, ii)Satisfactory, rather than optimal solutions iii) Investors suffer from various cognitive, affective, and social biases iv)Markets are weakly efficient, inefficient
Market efficiency: Capital Market Research: