Money markets, on the other hand, are often used to generate smaller amounts of capital or are simply used by firms as a temporary repository for funds. By regularly engaging with money markets, companies and governments are able to maintain their desired level of liquidity on a regular basis. Moreover, because of their short-term nature, money markets are often considered to be safer investments than those made on the equities market . Due to the fact that longer terms are generally associated with investing in capital markets, there is more time during which the security in question may see improved or worsened performance. As such, equity and debt securities are generally considered to be riskier investments than those made on the money market.
Although behavioral finance has been gaining support in recent years, it is not without its critics. Some supporters of the efficient market hypothesis, for example, are vocal critics of behavioral finance.
The efficient market hypothesis is considered one of the foundations of modern financial theory. However, the hypothesis does not account for irrationality because it assumes that the market price of a security reflects the impact of all relevant information as it is released.
The most notable critic of behavioral finance is Eugene Fama, the founder of market efficiency theory. Professor Fama suggests that even though there are some anomalies that cannot be explained by modern financial theory, market efficiency should not be totally abandoned in favor of behavioral finance.
In fact, he notes that many of the anomalies found in conventional theories could be considered shorter-term chance events that are eventually corrected over time. In his 1998 paper, entitled "Market Efficiency, Long-Term Returns And Behavioral Finance", Fama argues that many of the findings in behavioral finance appear to contradict each other, and that all in all, behavioral finance itself appears to be a collection of anomalies that can be explained by market efficiency.