THE ADAPTIVE MARKETS HYPOTHESIS – EFFICIENCY IN A NEW APPROACH
THE ADAPTIVE MARKETS HYPOTHESIS – EFFICIENCY IN A NEW APPROACH

Summary/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.

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