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Theoretical and Applied Economics
No. 2 / 2022 (631), Summer

The past, the present and the prospective future of efficient market hypothesis: a theoretical and empirical investigation of international stock markets

Laurel PASRICHA
Kurukshetra University, India
Neelam DHANDA
Kurukshetra University, India

Abstract. This article discusses the documentary evidence on the Efficient Market Hypothesis (EMH) generated in the middle of 20th century and 21st century so far to have a crystal clear understanding of whether the destiny of EMH has met an end or it will continue to play a crucial role in the modern finance. The debate that is ongoing between the conflicting ideologies of EMH and the behavioral finance is presented here. Further, to have a comprehensive understanding of the concept, this article empirically tests the validity of the weak-form of market efficiency by implementing various tests such as unit root test (Augmented Dickey-Fuller, Phillips-Perron test), variance ratio test, runs test, serial correlation LM test, GARCH model, etc. We study the data of eleven indices pertaining to nine developed and emerging nations of the world. The study then concludes with a futuristic view that the concept of EMH will continue to be one of the most and widely accepted theories by academicians despite the availability of a pile of literature that discards or goes against the hypothesis, until and unless the behavioral theorists come up with a concrete theory guiding stock pricing and return behavior.

Keywords: market hypothesis, random walk, behavioral finance, market anomalies, stock market.

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The Economicity. The Epistemic Landscape, Marin Dinu, 2016

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