Investor may temporarily move financial price away from market equilibrium. Over reaction may occur so that excessive optimism may drive price unduly high or excessive pessimism may drive price unduly low. economicscontinue to debate whether financial market are generally efficient.
According to one interpretation of the efficient market hypothesis only changes in fundamental factor, such as the outlook for margins, where random noise in the system may prevail. when the Dow Jones industrial Average plummeted22.6 percent the largest ever one day fall in the united states.
It seems also to be the case more generally that many price movements are not occasioned by new information a study of the fifty largest one day share price movements in the states in the post war period seems to confirm this. various explanations for such large and apparently non random price movements had been promulgated.
But these best explanation seems to be that the distribution of stock market prices is non Gaussian in which case, in any of its current forms, would not be strictly application. A period of good return also boosts the investors self confidence, reducing their risk threshold.