British CFAs reject the Efficient Market Hypothesis

According to the Financial Times (June 16, 2020), the British Chartered Financial Analyst Institute recently polled its members and found that 77% either “strongly” or “very strongly” disagreed that investors behaved rationally.

On the road to Damascus ...

This, of course, is consistent with the Irrationality Axiom which is one of the foundations of Capital Flow Analysis.

The Times article goes on to say,

The shift [in thinking] is significant as the assumption of efficient markets is the cornerstone of calculating the value of everything from stocks to pension fund liabilities to executive compensation. … However, the trend appears to reflect a wider intellectual swing. In the past three decades, the global asset management industry has been dominated by the so-called “efficient markets” hypothesis, which has given birth to ideas such as the capital asset pricing model, that portrays investing as a trade-off between risk and return.

Rejection of the Efficient Market Hypothesis has far reaching implications for the structure and management of capital markets, including Modern Portfolio Theory, the use of betas, the justification for index funds, and the M&M Theories.

See: Fallacies of the Nobel Gods.

I suspect that the British CPAs did not come to change their views suddenly, as a result of the Crash of 2008 or a blinding light on the road to Damascus, but rather, like most of us, came to discover from working in the real world that much that is taught in college is nonsense.

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