Understanding and Acceptance of the Efficient Markets Hypothesis and its Accounting Implications.

Abstract ABSTRACT: This survey reports on the levels of understanding and acceptance of the efficient markets hypothesis (EM H) in each of its three forms and on the extent of awareness of the accounting implications of the semi-strong and strong forms of the EMH. Selected accounting-information preparers and users were contacted and a 79 percent analyzable response rate obtained. Generally, low levels of understanding of the EMH and its accounting implications as well as extremely low levels of EMH acceptance were found. A majority of respondents indicated that they thought fundamental analysis was useful in out-performing the market averages over the long-term. Audited financial statements and quarterly reports were thought very useful for this purpose, especially by chartered financial analysts (CFAs). Twice as many CFAs as partners of Big Eight firms thought that accounting-determined risk measures were highly associated with market-determined risk measures. As a group, only accounting academicians thought inside information was useful in outperforming market averages.