Unaccounted forms of complexity: A path away from the efficient market hypothesis paradigm

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Financial markets are complex systems. Even with the prudent notion of inefficiency pockets, the efficient market hypothesis (EMH) is incapable to cope with the possible consequences of complexity in the relationship between information, price and value. Despite savant and sophisticated negative heuristics, the EMH can no longer provide sufficient theoretical conditions to consider the presence of market phases that are reconcilable with it. In other words, market patterns cannot be considered ‘accidental’ effects and/or even be caused by a criterion that is linked to informational inefficiency. This paper shows that markets could behave independently of the concepts and terminology of the EMH, and that computational irreducibility found in complex systems demonstrates its invalidity. As a principle, autonomous price patterns can emerge out of complexity, and this reduces the meaning of the concepts of efficiency or inefficiency, interrogates the causality of the relationship between information and price, and questions the univocity of the relationship between value and price. Since such patterns have been observed and reported abundantly in technical analysis literature, they are to be considered as the outcome of complexity at work. Therefore, in a more sophisticated approach of both uncertainty and determinism, forecasting price behavior is an essential possibility of complexity at work and this consideration may lead to a renewed approach of appraising risks. • The Efficient Market Hypothesis paradigm, to date, does not entirely consider the complexity of financial markets. • Computational irreducibility de-substantiates the notions, concepts and consequences of the Efficient Market Hypothesis. • Technical analysis patterns result from the complex system (price, information, value). • Forecasting market behaviors and risks is essentially not impossible. • A renewed form of research needs to focus on a non-deterministic approach of technical analysis patterns.