The efficient market hypothesis survived every empirical refutation and became finance orthodoxy

Evidence

Once one recognizes this distinct trend, then the appearance of the EMH in 1965 in Samuelson and Fama, and its rapid exfoliation throughout finance theory and macroeconomics, becomes something more than just a fluke. Indeed, the EMH served as the first bedrock theoretical tenet of the nascent field of “financial economics” in the late 1960s. Almost every trademark model, from CAPM to the Black-Scholes model of option pricing, has it built in. Most academic financial engineers treat it as an inviolate premise. The notion that all relevant information is adequately embodied in price data was one incarnation of what was fast becoming one of the core commitments of the neoclassical approach to markets, not to mention the First Commandment of models of financial assets. It has subsequently been built into the models that inform and conduct trading on all the world’s major exchanges. Of course, the fact that numerous ineffectual attempts were made along the way to refute the doctrine in specific instances (variance bounds violations, the end-of-the month effect, January effect, small-cap effects, mean reversion, and a host of others) did not impugn the EMH so much as quibble over just how far the horizon would be extended. The EMH spawned reams of econometric empiricism, but surprisingly little alteration in the base proposition. The massive number of papers published on the EMH merely testified to the Protean character of the idol of “market efficiency,” which grew to the status of obsession within the American profession. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 758

Categorization

• XREF: Connects to Mirowski’s broader ‘thought collective’ theme in this book — the EMH as a doctrinal commitment that survives refutation by redefining terms, echoing how neoliberal orthodoxy survived 2008. — connects to: Random-walk prices and market efficiency transformed US finance in the 1950s-60s — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 256; Accumulating anomalies pointed toward a Kuhnian revolution in finance — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 426; Finance theory altered its own empirical object of study — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 388 (+11 more)

Broader Connections

• Empirical failure does not dislodge orthodox economists from their theory #exemplifies (0.90) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 722