Exploring Investor Sentiment and Market Anomalies

Abstract

Market sentiment, behaviour of investors, and economic fundamentals are only a few of the many variables that impact financial markets, which are complex ecosystems. The theory of market rationality has long guided traditional finance theories, which hold that asset prices represent inherent values and that investors base their judgments on all available information. This assumption is often contradicted by empirical evidence, that demonstrates situations in which market prices diverge from basic valuations. As a response to these anomalies, behavioural finance developed, understanding that cognitive biases and human emotions significantly affect investment choices and market performance. The goal of this field is to better comprehend the intricacies of financial markets by incorporating psychological concepts into economic models. Behavioural finance offers a more complex and grounded understanding of markets by recognising the irrationalities that are a part of human behaviour