Death of the Efficient Market Hypothesis

Abstract

This report summarizes the breakthroughs achieved by the present writer in respect of the research on the investor behavior and stock price behavior as well as the interrelationship between them. On the basis of these achievements, the paper briefly analyzes the theory of random walk, and point outs its main errors. The paper then dwells on details identified with the errors and mistakes associated with the Efficient Market Theory. The paper also provides an in-depth analysis into the basic elements constituting the Efficient Market Theory (such as Rational Expectations and equilibrium) and pinpoints the underlying non-scientific aspects in this regard, and provides a brief judgment on the viewpoints advanced by Samuelson (1989), Fama (1998) and Malkiel (2003), (2005). Lastly, the paper concludes with the fact that Efficient Market Theory is far from a reasonably close approximation to the stock market realities, and its scientific content is close to zero. Moreover, the paper provides brand-new interpretations on whether those extraordinary investors who have succeeded in beating the market actually depended on luck or not along with a number of other financial theoretical problems related to the Efficient Market Theory.