The behavior of markets and investors, market decision making, and the dynamics of supply and demand in a given market cannot be determined with one hundred percent accuracy. However, the foremost minds of the past have designed various techniques and theories that help investors to make a particular purchasing decision or make choices in a logical manner. These theories and techniques help today's investors peek into the future and make near-perfect predictions regarding future market behavior and ongoing trends. A layman believes that an investor's decision-making process is based solely on speculation, but in reality every move an investor makes in the market today is supported by valid calculations and theories. Two of the most discussed and essential theories or concepts that are related to market dynamics and will be discussed at length in this assignment are Efficient Market Theory and Behavioral Finance. Efficient Market Theory suggests that in every financial market the flow of information is very efficient and this is reflected in the price of the stock at which it is traded. As we know, the price of shares fluctuating in a market does not only depend on the name of the company printed and information about the company in the balance sheet and other publicly available financial statements (Baghestani, H., 2009). In fact, political and government stability, inflation, interest rates, Treasury bills and many other factors determine the price at which a particular stock is sold or purchased. Information on all these factors is always available to every investor in the market, be it the buyer or the seller. Furthermore this information is available in an effi...... middle of paper ......formations regarding the market dynamics and if this is true then a financial market can never collapse. However in the real world we are faced with events such as the 2007 global financial crisis which significantly slowed global economic progress and once prosperous economies such as the United States ended up in a state of panic where poverty rose beyond above all previous levels and unemployment reached intolerable levels. Furthermore, interest rates in the United States have fallen to a terrible 1% during this crisis, leading to a decline in savings in its economy. We can therefore conclude that efficient market theory presents a weak argument for defining market dynamics. However, if a combination of efficient market theory and behavioral finance were used to predict market dynamics, this would be defined as an efficient and effective approach.