The Efficient Markets Hypothesis: The Demise of the Demon of Chance?

30 Pages Posted: 26 Nov 2009 Last revised: 4 Feb 2010

See all articles by Stephen J. Brown

Stephen J. Brown

New York University - Stern School of Business

Date Written: January 6, 2010


Many commentators have suggested that economists in general and financial economists in particular have some responsibility for the recent global financial crisis. They were blinded by an irrational faith in a discredited Efficient Markets Hypothesis and failed to see the bubble in asset prices and to give due warning of its collapse. There is considerable confusion as to what this hypothesis is and what it says. The irony is that the strong implication of this hypothesis is that nobody, no practitioner, no academic and no regulator had the ability to foresee the collapse of this most recent bubble. While few economists believe it is literally true, this hypothesis is considered a useful benchmark with some important practical implications. Indeed, a case can be made that it was the failure to believe in the essential truth of this idea which was a leading factor responsible for the global financial crisis.

Keywords: Efficient Markets Hypothesis, Random Walk Hypothesis, behavioral finance, event studies

JEL Classification: G14

Suggested Citation

Brown, Stephen J., The Efficient Markets Hypothesis: The Demise of the Demon of Chance? (January 6, 2010). NYU Stern School of Business FIN-09-28, Available at SSRN: or

Stephen J. Brown (Contact Author)

New York University - Stern School of Business ( email )

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