THEORETICAL JUSTIFICATION OF THE PSYCHOLOGICAL AND ECONOMIC APPROACH IN THE STUDY OF PRICE DYNAMICS ON THE INTERNATIONAL FINANCIAL MARKET

Abstract

The article explores the theoretical justification of price behaviour in international financial markets and demonstrates the evolution of economic thought regarding this issue. There are numerous investment theories that explain, either fully or partially, the reasons for price changes and the high volatility of international financial markets. Most of them are based on the hypothesis of efficient markets and the rational behaviour of all participants. However, widely accepted theories do not always work and often prove to be ineffective. The existence of both short-term and long-term trends, successful forecasts, and the use of technical and fundamental analysis by investors and other participants cannot be explained based on the traditional approach. Contradictory theoretical justifications of price dynamics for various financial assets encourage the search for new alternative explanations, including the consideration of behavioural finance theories. Several common characteristics between alternative theories and behavioural finance are identified. The psychological aspects of price behaviour are under-researched, hindering the discovery of the true nature of market dynamics. The assumption is made that behaviourism most accurately describes and explains the existence of trends, irrational behaviour of individuals and groups, and more. This is the only way to explain the popularity of both fundamental and technical analysis, which contradict the market efficiency theory. This fundamentally changes the perception of financial markets and challenges the effectiveness of widely accepted tools of analysis based on probability theory and game theory. An interdisciplinary approach, combining psychological and economic methods of analysis to study price dynamics in international financial markets, may prove to be the most effective in the current conditions of financial globalization. Thus, the market is considered inefficient, and the behaviour of its participants is considered irrational, identified as one of the main reasons for the inefficiency of analysis and forecasting tools based on widely recognized investment theories.