Come The Revolution .....

Andrew Smithers
FS Focus , 1st November 2009


This article first appeared in FSFocus, the membership magazine of the financial services faculty of the Institute of Chartered Accountants in England & Wales.

For finacial planners and investment managers, efficient market hypothesis (EMH) is probably the most important and often the most irritating part of economics. With the subject in the middle of one of its revolutions, or paradigm shifts, the levels of interest and of irritation must be particularly high. The current revolution in thinking suggests that EMH is no longer valid and that a replacement is required.

Although never accepted by a significant minority of economists and, even by many of the faithful, acknowledged to have problems, the EMH has long been the dominant idea in finance. As its underlying assumptions have been implicitly accepted in many academic papers, much that is taught in courses on financial economics will be seen to be unsound if the EMH is discarded.

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