Reconciling Efficient Markets with Behavioral Finance: The Adaptive Markets Hypothesis

ArXiv ID: ssrn-1702447 “View on arXiv”

Authors: Unknown

Abstract

The battle between proponents of the Efficient Markets Hypothesis and champions of behavioral finance has never been more pitched, and little consensus exists a

Keywords: Efficient Market Hypothesis, Behavioral Finance, Market Efficiency, Asset Pricing, Equities

Complexity vs Empirical Score

  • Math Complexity: 3.0/10
  • Empirical Rigor: 2.0/10
  • Quadrant: Philosophers
  • Why: The paper presents a high-level conceptual framework (Adaptive Markets Hypothesis) reconciling two established theories with minimal advanced mathematics, relying on qualitative arguments and evolutionary analogies rather than dense models or empirical backtesting.
  flowchart TD
    A["Research Goal:<br>Can markets be both<br>efficient and behavioral?"] --> B["Methodology:<br>AMH Framework<br>Adaptive Markets Hypothesis"]
    B --> C["Input Data:<br>Asset Pricing &<br>Equity Returns"]
    C --> D["Computation:<br>Event Studies &<br>Statistical Analysis"]
    D --> E["Key Finding:<br>Market Efficiency is<br>Not Static"]
    E --> F["Outcome:<br>Efficiency Varies by<br>Conditions & Competition"]