The Paradox of Securities Markets Efficiency
Singapore Journal of Legal Studies, pp. 80-108, 2009
29 Pages Posted: 8 Sep 2009
Date Written: September 3, 2009
This article examines the claim of securities markets efficiency based on the efficient markets hypothesis (EMH), which Fama proclaimed to be a well substantiated truth in 1978. Behavioural theory shows that individuals do not act to maximise their utility as asserted by neoclassical economists, while entrepreneurial theory explains share price movements as being the product of error prone guesswork by market participants. Alongside this, the emergence of the shareholder value concept in the late 1980s advocated by both corporate managers and outside market makers has undermined the very foundations of share price efficiency. This undermining seems to have been caused by forces exogenous to the firm. Nonetheless, securities markets remain competitive. This article explains the need for a new theory which incorporates behavioural aspects of investors and market makers that go beyond the assumed causality of managerial efficiency and capital markets to explain the inherent paradox.
Keywords: efficient markets hypothesis, behavioural theory, entrepreneurship, shareholder value theory, economic sociology
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