Way back in the 1980s, Robert Shiller, who last year was awarded the Nobel Prize for economics jointly with Eugene Fama, characterised the Efficient Market Hypothesis as “one of the most remarkable errors in the history of economic thought”. However, it was the financial crisis that gave wider credibility to the critics of financial market efficiency.
The crisis clearly demonstrated how fragile and how susceptible to crises the financial system as a whole really is. So what conclusion should we draw from this insight? In my view, it would be quite wrong to jump to the conclusion that the macroeconomic utility of stable financial markets is now questionable.