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The Efficient Market Hypothesis: A Survey

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Author Info
Meredith Beechey (Reserve Bank of Australia)
David Gruen (Reserve Bank of Australia)
James Vickery (Reserve Bank of Australia)

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Abstract

The efficient market hypothesis states that asset prices in financial markets should reflect all available information; as a consequence, prices should always be consistent with ‘fundamentals’. In this paper, we discuss the main ideas behind the efficient market hypothesis, and provide a guide as to which of its predictions seem to be borne out by empirical evidence, and which do not. In examining the empirical evidence, we concentrate on the stock and foreign exchange markets. The efficient market hypothesis is almost certainly the right place to start when thinking about asset price formation. The evidence suggests, however, that it cannot explain some important and worrying features of asset market behaviour. Most importantly for the wider goal of efficient resource allocation, financial market prices appear at times to be subject to substantial misalignments, which can persist for extended periods of time.

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Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2000-01.

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Date of creation: Jan 2000
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Handle: RePEc:rba:rbardp:rdp2000-01

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Related research
Keywords: efficient market financial market

Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dima, Bogdan & Barna, Flavia & Pirtea, Marilen, 2007. "Romanian Capital Market And The Informational Efficiency," MPRA Paper 5807, University Library of Munich, Germany. [Downloadable!]
  2. Thomas Schuster, 2003. "News Events and Price Movements. Price Effects of Economic and Non-Economic Publications in the News Media," Finance 0305009, EconWPA. [Downloadable!]
  3. Oxelheim, Lars & Rafferty, Michael, 2002. "On the Static Efficiency of Secondary Bond Markets," Working Paper Series 2001/7, Lund University, Institute of Economic Research. [Downloadable!]
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