Explaining Securities Markets Efficiency
Capital Markets Law Journal, Vol. 3, No. 3, pp. 1-17, July 2008
17 Pages Posted: 19 Sep 2009
Date Written: July 2008
This article examines the current status of the efficient markets hypothesis (EMH), which Fama proclaimed to be a well substantiated truth in 1978. The claims of EMH have been challenged by behavioural theory (which shows that individuals do not act to maximise their utility as asserted by neoclassical economists), entrepreneurial theory (which explains share price movements as being the product of error prone guesswork by market participants), and more recently by economic sociology (who explain share value as being the product of manipulation by forces inside and outside the corporation). Nonetheless, securities prices move freely, and sometimes volatile and unpredictable. This article argues that in the absence of objective criteria to measure Fama's claimed efficiency, EMH can at best be said to mean a free, and at times totally unpredictable, movement in share prices.
Keywords: Efficient markets hypothesis, behavioural theory, entrepreneurship, shareholder value theory, economic sociology
Suggested Citation: Suggested Citation