Beyond the Efficient Market Debate:
Utilizing Rational Beliefs to Capitalize on Market OpportunitiesIn 1961, John Muth introduced the Rational Expectations Hypothesis and revolutionized the economics profession, ultimately leading to the Efficient Market Hypothesis (EMH). Though many of the EMH concepts are still helpful for understanding financial markets, a few key assumptions are flawed and must be updated to adequately navigate the marketplace. Unfortunately for the economics community, over a half century later far too many economic professionals continue to embrace the entirety of the stale hypothesis. Fortunately for us at Alethea Capital Management, we have formerly addressed the flaws in the hypothesis and embrace a more nuanced view via the Rational Beliefs Hypothesis. This has allowed us to capitalize on specific market inefficiencies and add substantial alpha to our client portfolios.