‘The stock market's movements are generally consistent with rational behaviour by investors. There is no need to invoke fads, animal spirits, or irrational exuberance to understand the movements of the market.' Discuss in relation to the information technology bubble and its collapse.

Introduction

In a perfectly efficient market, it is assumed that all investors have access to all available information of future stock prices, dividend payoffs, inflation rates, interest rates and all other economic factors that affect the present prices of stocks. All investors are perfectly rational and choose to invest in stocks which will have a positive payoff. Therefore, all financial assets must always be priced correctly. Any apparent deviations from the correct pricing for stocks, according to the efficient market theory, must be an illusion, and no gains can be made from arbitrage. In short, all stock prices should reflect genuine and fundamental information about the value of......

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Title: Bubbles In Stock Markets
Approximate Word Count: 1636
Approximate Pages: 7 (250 words per double-spaced page)

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