Are Markets Confused or Systematically Misinformed?

41 Pages Posted: 24 Mar 2006

Date Written: March 9, 2006


This article synthesizes the Fama-French and the Kane models of return behavior under conditions of investor disagreement. In Fama and French, misinformation is "noise," while Kane models purposeful misinformation. The synthesis identifies empirical tests based on the difference between the behaviors of market returns under the two possible conditions. Returns are examined in four countries - Germany, Mexico, Thailand and Turkey - to test for rejection of the Fama-French hypothesis. We reject in Mexico, Thailand and Turkey but not in Germany. This suggests passive investment may increase insider rents under conditions of poor investor protection.

Keywords: Rational investors, emerging markets, Efficient Markets Hypothesis, CAPM

JEL Classification: G11, G15, G21, G28

Suggested Citation

Dew, James Kurt, Are Markets Confused or Systematically Misinformed? (March 9, 2006). Available at SSRN: or

James Kurt Dew (Contact Author)

Northeastern University ( email )

360 Huntington Ave,
Boston, MA 02115
United States

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