• Table of Contents
    • Abstract
    • Keywords
    • Article
      • The random walk hypothesis
      • Variance bounds tests
      • Overreaction and underreaction
      • Anomalies
      • Behavioural critiques
      • Impossibility of efficient markets
      • The current state of the EMH
      • The adaptive markets hypothesis
      • Conclusions
    • See Also
    • Bibliography
    • How to cite this article

efficient markets hypothesis

Andrew W. Lo
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
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The efficient markets hypothesis (EMH) maintains that market prices fully reflect all available information. Developed independently by Paul A. Samuelson and Eugene F. Fama in the 1960s, this idea has been applied extensively to theoretical models and empirical studies of financial securities prices, generating considerable controversy as well as fundamental insights into the price-discovery process. The most enduring critique comes from psychologists and behavioural economists who argue that the EMH is based on counterfactual assumptions regarding human behaviour, that is, rationality. Recent advances in evolutionary psychology and the cognitive neurosciences may be able to reconcile the EMH with behavioural anomalies.
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See Also

I thank John Cox, Gene Fama, Bob Merton, and Paul Samuelson for helpful discussions.
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How to cite this article

Lo, Andrew W. "efficient markets hypothesis." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 13 December 2017 <http://www.dictionaryofeconomics.com/article?id=pde2008_E000050> doi:10.1057/9780230226203.0454

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