The Efficient Market Hypothesis as an Extension of Neoclassical Theory: A Theoretical and Empirical Critique

Abstract

This article critically analyses the Efficient Market Hypothesis (EMH), proposed by Eugene Fama in 1970, as an extension of the principles of the neoclassical general equilibrium model to financial markets. The EMH asserts that asset prices fully reflect all available information, making it impossible to systematically achieve abnormal returns. The study begins by presenting the three forms of market efficiency—weak, semi-strong, and strong—and their implications for investment strategies. It then reviews theoretical and heterodox criticisms of the EMH, drawing on behavioural finance, historical institutionalism, and neo-Marxism to challenge the assumption of neutrality and informational symmetry in markets. Methodologically, the article combines conceptual analysis with empirical testing based on monthly data from the Brazilian stock market (Ibovespa) over the period 1997–2025. Four hypotheses were tested to assess the weak form of the EMH, using statistical techniques such as ANOVA, autocorrelation tests, variance ratio, and unit root tests. The results support the absence of seasonal effects and serial autocorrelation, as well as adherence to the random walk model and ergodicity. These findings suggest partial support for weak-form efficiency in the Brazilian context. This study contributes to a more comprehensive understanding of market efficiency by integrating theoretical critique with empirical analysis and by highlighting the importance of informational and behavioural imperfections in shaping asset price dynamics.