Efficient Market Hypothesis and Behavioural Finance: Reconciling the Opposites through Multifractional Processes with Random Exponent

Real world financial dynamics daily do challenge the credibility of the Efficient Market Hypothesis, to the extent that a strand of skeptical thought, the Behavioural Finance, has been booming. The question whether a model exists able to make consistent the two paradigms is a living matter that financial markets demand to address. The paper deals with a parsimonious stochastic model able to include as special cases both market efficiency and "psychological" phenomena such as the underreaction and the overreaction, peculiar features of the behavioural finance. The great readability of the model, its capability to agree the controversial results provided by literature on efficient markets and the simplicity of the financial intuition it offers are discussed.