When efficient market hypothesis meets Hayek on information: beyond a methodological reading

Abstract

Hayek and Fama are sometimes seen as proposing a comparable theory of prices. Hayek proposes to understand prices as information conveyer from the process of competition, while Fama defines efficiency as the fact that all information in a market is integrated in assets prices. This close up ignores huge differences between the authors. This paper explains how a lineage between Hayek and the theory of informational efficiency of Fama can be illustrated while taking into account these differences. We introduce in order to defend this claim a distinction between methodology and epistemology: methodology is seen as the way an author operationalizes his broader conceptions whereas epistemology is defined as the core conception of his theory. We particularly emphasise a homogeneous shift in the epistemology of Hayek and the theory of efficiency. We conclude that this shift gives a content to what some authors called neoliberalism as a form of Weltanshauung. then be said that the theory of efficiency formulated by Fama (1965aFama ( ,b, 1970, when prices incorporate all the relevant information, is a restatement of the theory of price we can find in the work of Hayek. One may also point out the similarities in terms of consequences: both authors defend the deregulation of the market. But are those elements enough to justify the comparison and its theoretical outcomes?While this intention appears considerable in its consequences little attention has been paid to the testing of this intuition. Most comparisons remain superficial, non-systematic or under developed. For example, Vivès (2008, p. 2), in his classical book on information and learning in markets, just asserts that:Hayek's ideas are the basis for the rational expectations models that explain how rational agents make optimal inferences from prices, and other public statistics, about the relevant parameters about which they are uncertain.But this sort of assimilation appears problematic. One difficulty differentiates itself frankly:Hayek, as a systematic author, developed a particular social philosophy and philosophy of economics. How can we compare him with authors who do not have the same range of analysis and a different methodology? It is well accepted now that a lot of similarities between Hayek and other authors, for example authors from the Chicago School, are mostly 4 the particularity of Hayek's position as a representative of the Austrian tradition, which highly differs from the position of the American school, which is Fama's school. 3 Some authors on this subject even wrote about two different paradigms (Audier, 2013), highlighting the very particular position of Hayek in the economic field, particularly on questions of methodology.Our aim in this paper is to develop the comparison between the Hayekian theory and the development of efficiency in finance through the works of Working and Fama in order to justify the lineage between these authors while taking into consideration their important differences. The concept of information, initially called knowl...

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