1. INTRODUCTION Efficient market, as one of the pillars of neoclassical finance, states that financial markets are efficient on information. The efficient market hypothesis suggests that there is no trading system based on currently available information that can consistently generate excess risk-adjusted returns since this information is already reflected in current prices. However, EMH has been the most controversial subject of research in the fields of financial economics over the past 40 years. “Behavioral finance, however, is now seriously challenging this premise by arguing that people are clearly not rational” (Ross, (2002)). Behavioral finance uses facts from psychology and other human sciences to explain the behaviors of human investors.2. MAIN BODY A generation ago, it was generally believed that securities markets were efficient at tailoring information about individual securities and the stock market as a whole (Malkiel, (2003)). However, we cannot deny that the efficient market hypothesis presents several paradoxes. First, one of the main theoretical pillars for EMH to be a consequence of equilibrium in capital markets is that markets are always rational. This is against realism. Even if the previous hypothesis turns out to be quite possible, many recent studies have concluded that rationality is not always a realistic assumption since investors in many cases engage in irrational investments (Kahneman and Riepe, (1998)). Second, the efficient market hypothesis cannot explain market anomalies. These market anomalies include the price/earnings effect, the size and January effect, the monthly effect, the holiday effect, and the weekend effect. These anomalies indicate market inefficiency...... middle of paper ......el, 2003. The efficient market hypothesis and its critics, Journal of Economic Perspectives, vol. 17, no. 1, winter 2003, pp. 59-82.[12]. Jay R. Ritter, 2003, Behavioral Finance, Pacific-Basin Finance Joural 11 (2003), pp. 429-437[13]. Stephen A. Ross, 2002. Neoclassical finance, alternative finance and the closed-end fund puzzle, European Financial Management, vol. 8, no. 2, 2002, pp. 129-137[14]. G. William Schwert, 2002. Anomalies and market efficiency, NBER Working Paper No. 9277, October 2002. JEL No. G14, G12, G34, G32[15]. Andrei Shleifer and Lawrence H. Summers, 1990. Journal of Economics Perspectives, vol. 4, no. 2, Spring 1990, pp. 19-33[16]. A discussion with Burto Malkiel and Sendhil Mullainathan, 2005. Market Efficient versus Behavioral Finance, Journal of Applied Corporate Finance, vol. 17, no. 3, Morgan Stanley publication, summer 2005