The “Efficient Markets Hypothesis” is a popular target of anger and derision among lay critics of the econ profession.images
How can financial markets be “efficient” when they just crashed and took our economy down with them? And when sensible people like Bob Shiller, Nouriel Roubini, Bill McBride, et al. were screaming their heads off about a housing bubble years before the pop?

Of course I have some sympathy for these complaints. But the more I learn about and teach finance, the more I learn what an important and useful idea the “EMH” in fact is. I don’t want to say that the EMH is unfairly maligned, but I do think that its vast usefulness is usually ignored in the press.
First of all, people should realize that the EMH is misnamed—it’s not really a hypothesis, it’s not about “efficiency” in the economic sense of the word, Continue reading