Fama's criticism in relation to new research1. IntroductionOver the past two decades, there has been a debate over whether or not there are behavioral aspects of finance. This means that financial markets are subject to different investor sentiments and the markets are not efficient, i.e. the Efficient Market Hypothesis (EMH) is not verified. Proponents of the EMH argue that all available information is included in stock prices, meaning that any long-term abnormal returns obtained are a matter of chance. On the other hand, proponents of behavioral finance argue that due to investors overreacting or underreacting to information, it takes time for prices to fully adjust and there is therefore an opportunity to obtain abnormal returns in the long term. In 1998, Eugene F. Fama published a famous critique of long-term performance anomalies. He deduced that all the anomalies reported so far in scientific articles were a matter of chance. He argues that it is easy to show weaknesses in behavioral patterns and evidence of anomalies. If there is a more or less equal split between overreaction and underreaction, and between maintenance and reversal of returns, this supports the market efficiency hypothesis that all abnormal returns are due to chance. It also infers that with a reasonable change in the methodology used, anomalies are significantly reduced or disappear completely. In the years since his critique was published, many articles have contradicted Fama's view and supported the behavioral aspect of finance, arguing that the EMH is not valid for financial markets due to over-reaction and under-reaction of investors due to overconfidence. In this essay, I will take a closer look at two articles that focus on how different investor reactions to information increase the volume of market trading (Odean, 1998) and which stocks are traded (Barber and Odean, 2007). Both find evidence that investors' overreaction to certain information influences their trading and therefore the market. This contradicts the theory of an efficient market where all market reactions are rational. I will first present a brief theory on the efficient market hypothesis and behavioral finance. I then provide an overview of Fama's (1998) critique. In the following section, I will present the main points of the articles by Odean (1998) and Barber and Odean (2007). These are then compared to the relevant findings of Fama.2.