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A Tale of Market Efficiency

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  • T. Verheyden
  • L. De Moor
  • F. Van Den Bossche

Abstract

The efficient market hypothesis (EMH) has been subject to debate for decades. The field of behavioral finance was developed in response to the body of anomalous evidence with regard to the EMH. Considering theoretical and empirical research, we summarize the debate on weak form market efficiency. Testing methodologies developed in the early aftermath of the first discussions are explored and recent alternative approaches are reviewed. As a way out of the stalemate, we consider Lo’s adaptive markets hypothesis (AMH). However, some empirical inconsistencies in the observed pattern of efficiency keep this theory from entering mainstream academic finance. From our review of the tale of market efficiency, we suggest that future research is geared towards the further development of time-varying test methodologies and the establishment of a new theoretical framework on efficiency to go along with the empirical findings.

Suggested Citation

  • T. Verheyden & L. De Moor & F. Van Den Bossche, 2013. "A Tale of Market Efficiency," Review of Business and Economic Literature, Intersentia, vol. 58(2), pages 140-158, June.
    • Handle: RePEc:sen:rebelj:v:58:i:2:y:2013:p:140-158
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    Cited by:

    1. Pasca Lucian, 2015. "A Critical Review of the Main Approaches on Financial Market Dynamics Modelling," Journal of Heterodox Economics, Sciendo, vol. 2(2), pages 151-167, December.
    2. Isao Yagi & Mahiro Hoshino & Takanobu Mizuta, 2020. "Analysis of the impact of maker-taker fees on the stock market using agent-based simulation," Papers 2010.08992, arXiv.org.
    3. Takanobu Mizuta & Sadayuki Horie, 2019. "Mechanism by which active funds make market efficient investigated with agent-based model," Evolutionary and Institutional Economics Review, Springer, vol. 16(1), pages 43-63, June.

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