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A Multicriteria Extension of the Efficient Market Hypothesis

Author

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  • Francisco Salas-Molina

    (Department of Management “Juan José Renau Piqueras”, Faculty of Economics, Universitat de València, Av. Tarongers s/n, 46022 Valencia, Spain)

  • David Pla-Santamaria

    (Department of Economics and Social Sciences, Higher Polytechnic School of Alcoy, Universitat Politècnica de València, Ferrándiz y Carbonell, 03801 Alcoy, Spain)

  • Fernando Mayor-Vitoria

    (Department of Economics and Social Sciences, Higher Polytechnic School of Alcoy, Universitat Politècnica de València, Ferrándiz y Carbonell, 03801 Alcoy, Spain)

  • Maria Luisa Vercher-Ferrandiz

    (Department of Economics and Social Sciences, Higher Polytechnic School of Alcoy, Universitat Politècnica de València, Ferrándiz y Carbonell, 03801 Alcoy, Spain)

Abstract

Challenging the Efficient Market Hypothesis (EMH) has been a recurrent topic for researchers and practitioners since its formulation. Hundreds of empirical studies claim to either prove or disprove the EMH by means of a number of heterogeneous methods. Even though the EMH is usually adjusted to a measure of risk, there is a lack of a formal analysis within a multiple-criteria context. In this paper, we propose a extension of the EMH that accommodates the foundations of multiple-criteria decision analysis. To this end, we rely on a family of parametric signed dissimilarity measures to assess multidimensional performance differences. Since normalization is a critical step in our approach to avoid meaningless comparisons, we present two novel theoretical results connecting different normalization techniques. This multicriteria extension provides a common framework on which to add empirical evidence regarding the EMH testing.

Suggested Citation

  • Francisco Salas-Molina & David Pla-Santamaria & Fernando Mayor-Vitoria & Maria Luisa Vercher-Ferrandiz, 2021. "A Multicriteria Extension of the Efficient Market Hypothesis," Mathematics, MDPI, vol. 9(6), pages 1-16, March.
    • Handle: RePEc:gam:jmathe:v:9:y:2021:i:6:p:649-:d:519533
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    References listed on IDEAS

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    1. Giuseppe Munda, 2016. "Multiple Criteria Decision Analysis and Sustainable Development," International Series in Operations Research & Management Science, in: Salvatore Greco & Matthias Ehrgott & José Rui Figueira (ed.), Multiple Criteria Decision Analysis, edition 2, chapter 0, pages 1235-1267, Springer.
    2. Ana Garcia-Bernabeu & Adolfo Hilario-Caballero & David Pla-Santamaria & Francisco Salas-Molina, 2020. "A Process Oriented MCDM Approach to Construct a Circular Economy Composite Index," Sustainability, MDPI, vol. 12(2), pages 1-14, January.
    3. David Peón & Manel Antelo & Anxo Calvo, 2019. "A guide on empirical tests of the EMH," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 18(2), pages 268-295, March.
    4. Maria Rosa Borges, 2010. "Efficient market hypothesis in European stock markets," The European Journal of Finance, Taylor & Francis Journals, vol. 16(7), pages 711-726.
    5. Francisco Salas-Molina, 2021. "A formal specification of multicriteria economics," Operational Research, Springer, vol. 21(4), pages 2627-2650, December.
    6. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    7. González-Pachón, Jacinto & Romero, Carlos, 2016. "Bentham, Marx and Rawls ethical principles: In search for a compromise," Omega, Elsevier, vol. 62(C), pages 47-51.
    8. Aditya Sharma & Arya Kumar, 2019. "A review paper on behavioral finance: study of emerging trends," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 12(2), pages 137-157, May.
    9. Opricovic, Serafim & Tzeng, Gwo-Hshiung, 2004. "Compromise solution by MCDM methods: A comparative analysis of VIKOR and TOPSIS," European Journal of Operational Research, Elsevier, vol. 156(2), pages 445-455, July.
    10. Francisco Salas-Molina & David Pla-Santamaria & Ana Garcia-Bernabeu & Javier Reig-Mullor, 2019. "A Compact Representation of Preferences in Multiple Criteria Optimization Problems," Mathematics, MDPI, vol. 7(11), pages 1-16, November.
    11. Salvatore Greco & Alessio Ishizaka & Menelaos Tasiou & Gianpiero Torrisi, 2019. "On the Methodological Framework of Composite Indices: A Review of the Issues of Weighting, Aggregation, and Robustness," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 141(1), pages 61-94, January.
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    Cited by:

    1. Antonio Jiménez-Martín, 2022. "Special Issue “Recent Advances and Applications in Multi Criteria Decision Analysis”," Mathematics, MDPI, vol. 10(13), pages 1-3, July.

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