Beyond the efficient markets hypothesis: towards a new paradigm

John Fender

Research output: Contribution to journalArticlepeer-review


To go beyond the efficient markets hypothesis (EMH) we suppose that the stock market can be in one of three states: (1) a fundamental state, where share prices are determined largely as in the EMH; (2) a bubble or bull market state, where share prices are above their fundamental levels but are expected to continue to rise further, and (3) a bear market state, where shares are held exclusively by irrational agents and rational agents cannot exploit the overvaluation because of short-selling constraints. Also, heterogeneous rational expectations may help explain some features of stock market behaviour.
Original languageEnglish
Pages (from-to)333-351
Number of pages19
JournalBulletin of Economic Research
Issue number3
Early online date27 Jan 2020
Publication statusPublished - 1 Jul 2020

Bibliographical note

Funding Information:
Versions of this paper were presented at a University of Birmingham internal workshop, at a conference at Lancaster University, at the Research Day at Aston University in 2015, at the 2015 Money, Macro and Finance Research Group conference in Cardiff and at the 2016 Manchester CGBCR Conference. The author is grateful to a number of participants who made helpful suggestions, and to two anonymous referees.

Publisher Copyright:
© 2020 Board of Trustees of the Bulletin of Economic Research and John Wiley & Sons Ltd

Copyright 2020 Elsevier B.V., All rights reserved.


  • efficient markets hypothesis
  • bubbles
  • bear markets
  • heterogeneous expectations
  • G1

ASJC Scopus subject areas

  • Economics and Econometrics


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