The CAPM and EMH stick to the neoclassical script of believing that the economy and finance markets are stable, at or near equilibrium, and on this basis argue that “you can’t beat the market”. But there is an alternative view, far more aligned with the actual data, that says that markets are chaotic, far from equilibrium systems, and for that reason it’s very hard to beat the market.
Eugene Fama was an enthusiastic promoter of CAPM and the Efficient Markets Hypothesis, arguing that despite their absurd assumptions, the data supported the theories. But was this a fluke, the result of the narrow data range he used–from 1950 till 1966?
He has since disowned the theory in 2004, stating that “the theory has never been an empirical success”, and that “most applications of the theory are invalid”. But somehow these honest statements don’t seem to have made it into the finance textbooks.
Here are the Powerpoint files for this lecture: Part 1; Part 2.