Tag: efficient

The efficient-market hypothesis (EMH) requires that investors have “rational expectations,” that on average the population is correct and whenever new information appears, expectations are updated appropriately. Nice theory, but in the real world investors are anything but “rational.” As human beings, we tend to overreact to new information, behaving in an irrationally exuberant or irrationally despondent fashion. […]

Each year, thousands of new undergraduate and MBA students are indoctrinated with the virtues of the almighty Efficient Market Hypothesis (EMH). Despite an abundance of evidence disproving the central tenets of the theory, the orthodoxy remains in place. In the academic world, the desire to explain market movements in one convenient theory seems to trump […]