Empirical tests only hardened both sides of the EMH debate

Evidence

Amazingly, there is still no consensus among financial economists. Despite the many advances in the statistical analysis, databases, and theoretical models surrounding the Efficient Markets Hypothesis, the main effect that the large number of empirical studies have had on this debate is to harden the resolve of the proponents on each side [my italics]. One of the reasons for this state of affairs is the fact that the Efficient Markets Hypothesis, by itself, is not a well-defined and empirically refutable hypothesis. To make it operational, one must specify additional structure, e.g., investors’ preferences, information structure, business conditions, etc. But then a test of the Efficient Markets Hypothesis becomes a test of several auxiliary hypotheses as well, and a rejection of such a joint hypothesis tells us little about which aspect of the joint hypothesis is inconsistent with the data. Are stock prices too volatile because markets are inefficient, or is it due to risk aversion, or dividend smoothing? All three inferences are consistent with the data. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 752

Categorization

• XREF: This is the Duhem-Quine underdetermination problem applied to economics; connects to the reader’s methodology interests and to physics of testing theories (e.g., Lakatosian research programmes). — connects to: Contradictory research findings enabled both sides to weaponize evidence selectively — , The Rod and the Child: A Global History…, 9551; CAPM and market efficiency tests cannot be cleanly separated empirically. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 110; The CAPM may be true but can never be empirically tested — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 404 (+1 more)
• DEEPTHINKING: The claim that evidence-hardening rather than evidence-adjudication is the dominant effect of three decades of testing is a paradigm-shifting observation about how empirical economics actually functions, resistant to one-line summary.

Broader Connections

• Contradictory research findings enabled both sides to weaponize evidence selectively #expands (0.88) — , The Rod and the Child, 9551
• CAPM and market efficiency tests cannot be cleanly separated empirically. #expands (0.85) — Donald MacKenzie, An Engine, Not a Camera, 110
• The CAPM may be true but can never be empirically tested #expands (0.82) — Donald MacKenzie, An Engine, Not a Camera, 404
• Modigliani-Miller propositions resist empirical testing because risk classes cannot be fixed #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 389