10 papers analyzed
Some studies suggest that the efficient market hypothesis (EMH) is supported by AI advancements and certain market behaviors, while other studies highlight its sensitivity to model specifications and regional differences, and the challenges in defining and distinguishing it from returns models.
The Efficient Market Hypothesis (EMH) posits that financial markets are "informationally efficient," meaning that asset prices fully reflect all available information. This hypothesis has been a cornerstone of financial theory since the 1960s, generating extensive debate and research. The following synthesis presents key insights from multiple research papers on the EMH, grouped into relevant schools of thought.
Market Efficiency and Information Reflection
Impact of Artificial Intelligence (AI)
Behavioral Critiques
Market Model Sensitivity
Forecasting and Nonstationarities
Empirical Evidence and Statistical Tests
The Efficient Market Hypothesis remains a central yet contentious theory in finance. While some empirical evidence supports the notion that markets are efficient, particularly in developed markets, other studies highlight significant inefficiencies, especially in daily data and developing markets. Advances in AI may enhance market efficiency, but behavioral critiques and the sensitivity of market models continue to challenge the universality of EMH. Overall, the hypothesis provides a useful framework for understanding market behavior, even as ongoing research seeks to reconcile its limitations with observed market anomalies.
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