A Note on the Efficient Markets Hypothesis
Journal of Accounting and Finance Research, pp. 1-7, 2000
7 Pages Posted: 22 Mar 2012
Date Written: March 19, 2012
In this paper I review the literature and discuss the current state of affairs in marketbased accounting research with respect to the Efficient Markets Hypothesis (EMH). Empirical documentation of the post-earnings announcement drift anomaly seems to have formalized a crisis for the efficient markets hypothesis among a select group of accounting scholars. The anomaly is most likely due to poor understanding or measurement problems rather than an actual market malfunction. Other reasons also exist to suggest that the efficient markets hypothesis is not truly threatened: the significance of the drift and other anomalies for researchers and market participants alike seems small; no alternative hypothesis is available; research from other knowledge paradigms and social costs are seemingly ignored; and judgements about the efficient markets hypothesis are usually based on an inapplicable philosophy. The weight of the evidence favors a useful and robust efficient markets hypothesis and philosophical arguments against it seem unjustified.
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