Unifying Principle
Most of the major results in academic finance rely on the assumption that markets are reasonably efficient. Since financial theory directly affects practice, it means that most financial decision-makers directly or indirectly rely on the idea of market efficiency. That assumption is reflected in the standard advice of investment advisers, and the standard tools used by businesses to evaluate investment choices.
This realization may be unsettling to people who strongly doubt markets are efficient. But the idea rests on the observation that when many smart people try to exploit any new information as it hits the market, prices tend to reflect an informed consensus about value. It does not say that prices are exactly right, or that everyone acts rationally. Thus I consider market efficiency a unifying principle that makes finance theory more robust, rather than a cause for concern.
Tags: Finance