Abstract
In 1978, Michael Jensen declared that there is no other proposition in economics which has more solid empirical evidence supporting it than the efficient market hypothesis. However, market behaviour during the recent financial crisis would appear to debunk his assertion. This article aims to study to what extent financial theory based on the EMH – Efficient Market Hypothesis – is lacking in sociological and psychological considerations in its reasoning, and how investors can factor the behavioural aspect into the management process. Lastly, we aim to highlight the conditions under which the manager of an equity portfolio can generate a positive and steady absolute performance while controlling volatility and correlation parameters.
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