The “Efficient Market Hypothesis” Gives Way to “Behavioral Finance”

The “efficient market hypothesis,” which Wall Street embraced for decades, holds that in a market where everyone has equal access to the same information, rational investors will set stock prices — and the prices will reflect the generally understood information about the value of those stocks. No one has an unfair advantage — and no one is supposed to be able to beat the market over the long term. This is the foundation upon which the $1 trillion index-fund industry rests.

Economist Eugene Fama is recognized as the most passionat.....