New thoughts on efficient markets

Abstract

The globally widespread economic crisis that burst in 2007 has been a central topic of recent papers. Economists and researchers have been pointing out that the crisis underpins the downfall of the efficient market hypothesis (EMH), as part of a search for the roots of the crisis. This undermined the belief in the traditional asset-pricing theories and models. Several papers have surfaced that highlight the role of the EMH in the economic crisis, and have therefore doomed the theory governing market mechanism as dead. This paper presents the current debate and takes the side of proponents of the EMH who argue that that this assertion is flawed, and the EMH remains the most appropriate proxy for understanding market forces. It is the only quantifiable approach to model market prices that is still in use by analysts and investors today.efficient market hypothesis, asset pricing models, sub-prime credit crisis