Infinitely elastic? -the influence of the Efficient Markets paradigm on financial regulation
Year: 2026
Type: article
Abstract: This paper examines the influence of the Efficient Markets Hypothesis (EMH) on financial regulation, using a perspective drawing on arguments from the Philosophy of Science discipline. The paper aims to show that, prior to the global financial crisis, there already existed a large body of empirically observed asset price anomalies, which may be seen to contradict the notion of elastic demand curves. However, proponents of the EMH tended to interpret these as corroborations, rather than refutations, through articulation of what Kuhn (1996) would characterise as ad-hoc hypotheses. The Information Hypothesis is identified as particularly influential in this respect. Furthermore, the paper makes the argument that, when supplemented with the Information Hypothesis, the hypothesis of elastic demand curves becomes tautological and thus unfalsifiable, violating Popper's standard for scientific theories. A potential lesson from this relates to more rigorous vetting of scientific standards in research used to motivate policy changes.
DOI: 10.46298/jpe.16371
Author: Mathias Skrutkowski
Institution: Lund University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4414761562
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