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The Efficient Market Conjecture

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  • Campos Dias de Sousa, Ricardo Emanuel
  • Howden, David

Abstract

Although commonly misconstrued as a statement about the “correctness” of prices, the Efficient-Market Hypothesis (EMH) is a statement about their informational content. The aftermath of the recent recession has brought renewed skepticism to EMH, even leading some to redefine it as the inefficient market hypothesis. We demonstrate that such a change is misguided, as it changes the nature of the input (i.e., the market) but not the truth value of the statement (i.e., whether markets are efficient). We further outline several logical fallacies of the Hypothesis which negate its usefulness. We conclude by showing that the EMH was never a hypothesis and as such is best considered a conjecture. As a conjecture, it is increasingly difficult to reconcile with actual market behavior.

Suggested Citation

  • Campos Dias de Sousa, Ricardo Emanuel & Howden, David, 2015. "The Efficient Market Conjecture," MPRA Paper 79792, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79792
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    References listed on IDEAS

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    More about this item

    Keywords

    Efficient markets; informational efficiency; EMH; equity returns;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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