A Tale of Market Efficiency

Review of Economic and Business Literature, 58(2), 139-156 (2013)

17 Pages Posted: 22 Jan 2014 Last revised: 22 Jun 2016

See all articles by Tim Verheyden

Tim Verheyden

Arabesque Partners; Vrije Universiteit Brussel - Faculty of Economic and Social Sciences and Solvay Business School

Lieven De Moor

Vrije Universiteit Brussel

Filip Van den Bossche

KU Leuven - Faculty of Business and Economics (FEB)

Date Written: 2013

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.

Keywords: efficient market hypothesis, behavioral finance, weak form market efficiency, adaptive market hypothesis

JEL Classification: B26, G02, G14

Suggested Citation

Verheyden, Tim and De Moor, Lieven and Van den Bossche, Filip, A Tale of Market Efficiency (2013). Review of Economic and Business Literature, 58(2), 139-156 (2013). Available at SSRN: https://ssrn.com/abstract=2382793

Tim Verheyden (Contact Author)

Arabesque Partners ( email )

43 Grosvenor Street
LONDON, W1K 3HL
United Kingdom
+447878679314 (Phone)

HOME PAGE: http://www.arabesque.com/s-ray

Vrije Universiteit Brussel - Faculty of Economic and Social Sciences and Solvay Business School ( email )

Pleinlaan 2
Brussels, 1050
Belgium

Lieven De Moor

Vrije Universiteit Brussel ( email )

Department of Business
Pleinlaan 2
Brussels, B-1050
Belgium
+32 498 616463 (Phone)

HOME PAGE: http://goo.gl/qntmYg

Filip Van den Bossche

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Warmoesberg 26
Brussel, 1000
Belgium

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