ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Efficient Market Hypothesis: The Model That Failed

The assumption of the efficient market hypothesis is that the price of a financial asset reflects all available information that is relevant to its value. The players are rational and all information is available in the public domain. But the recent global financial crisis has brought out the failure of the EMH and there is valid theoretical criticism of the hypothesis. How did the EMH flourish and self-destruct?

The high tide of the Anglo-Saxon model of banks has receded and the detritus cleared with trillions of taxpayers’ dollars and euros. The surprise is not that the model is in retreat, but that it could hold sway for so long

In its heyday, many a neoconservative monetarist fondly foresaw convergence leading to its universal adoption. Even in the wildest of his dreams, he would not have imagined that the icons of his model would come under the criminal scrutiny of the Securities and Exchange Commission of the United States.1

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