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Why the Financial Crisis Proves the Efficient Market Hypothesis

Jeremy Siegel on why the financial crisis proves rather than disproves the efficient market hypothesis:

is the Efficient Market Hypothesis (EMH) really responsible for the current crisis? The answer is no. The EMH, originally put forth by Eugene Fama of the University of Chicago in the 1960s, states that the prices of securities reflect all known information that impacts their value. The hypothesis does not claim that the market price is always right. On the contrary, it implies that the prices in the market are mostly wrong, but at any given moment it is not at all easy to say whether they are too high or too low. The fact that the best and brightest on Wall Street made so many mistakes shows how hard it is to beat the market.

 

posted on 28 October 2009 by skirchner in Economics, Financial Markets

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Funny.  At Quiggin it proves exactly the opposite.

The only thing the GFC has proved is that economists from the left and right will never agree.

Posted by .(JavaScript must be enabled to view this email address)  on  10/28  at  05:45 AM


I think you can leave ‘from the left and right’ out of that statement.

Strictly speaking, there is no definitive empirical test for the EMH.  The point is that the financial crisis is not inconsistent with it.

Posted by skirchner  on  10/28  at  08:51 AM



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