HOW RATIONAL INVESTORS DEAL WITH UNCERTAINTY (OR, REPORTS OF THE DEATH OF EFFICIENT MARKETS THEORY ARE GREATLY EXAGGERATED)

Much academic research in finance in the past quarter century has been devoted to examining the proposition that corporate securities are priced by "rational" investors in an "efficient market." Stated most simply, the proposition says that the intensive pursuit of large returns by stock market investors ensures that, for the vast majority, only modest ones will be had. This argument, which has been refined and tested as the "efficient markets hypothesis" (EMH), could well be described as the foundation of modern financial theory. 1989 Morgan Stanley.