Home Volumul 2 THE ADAPTIVE MARKETS HYPOTHESIS – EFFICIENCY IN A NEW APPROACH

THE ADAPTIVE MARKETS HYPOTHESIS – EFFICIENCY IN A NEW APPROACH


István Joó, Anita Borzán
Szent Istvan University Faculty of Economics, H-5600 Bekescsaba, Bajza utca 33, Hungary
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Abstract
The battle between the Efficient Markets Hypothesis (EMH) and Behavioral Finance (BF)
is a very taut situation, where neither size can shoot the winning goal. In this short study we
will introduce a new framework, the Adaptive Markets Hypothesis, which tries to reconcile
the two major views about the financial markets. The Adaptive Markets Hypothesis is
based on evolutionary principles and implies that the „degree” of market efficiency is
related to environmental factors such as the number of competitors in the market, the size
of profit opportunities, and the adaptability of market participants. These forces
(competition, mutation, reproduction, natural selection) determine the efficiency of
markets, the number of investment products or the waxing and waning of industries.
Keywords: AMH, learning, financial markets, adaptation

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