The paradox of securities markets efficiency : where to next?

This article examines the claim of securities markets efficiency based on the efficient markets hypothesis (EMH), which Fama proclaimed to be a well substantiated truth in 1978. Behavioural theory shows that individuals do not act to maximise their utility as asserted by neoclassical economists, while entrepreneurial theory explains share price movements to be the product of error prone guesswork by market participants. Alongside this, the emergence of the shareholder value concept in the late 1980s advocated by both corporate managers and outsider market makers has undermined the very foundations of share price efficiency. This undermining seems to have been caused by forces exogenous to the firm. Nonetheless, securities markets are highly competitive. This article explains the need for a new theory to explain the inherent paradox.