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Meir Statman By Beverly Chandler, Opalesque London:

A recent paper from Meir Statman, the Glenn Klimek Professor of Finance at the Leavey School of Business, Santa Clara University and Visiting Professor at Tilburg University in the Netherlands, published in the Journal of Investment Management applies his research on behavioural finance to the crisis in efficient markets.

Statman finds that the investment community’s long held belief that markets are efficient has been blamed for instigating the crisis and 'lulling us into complacency as the crisis was approaching.’

He believes that this debate is unfocussed for two reasons: firstly because there is no common definition of market efficiency which means that there can’t be a common language and secondly, efficient markets are conflated with free markets.

"The ambitious definition of efficient markets is their definition as rational markets, where security prices always equal intrinsic values. The modest definition of efficient markets is their definition as unbeatable markets. Bubbles cannot occur in rational markets but they can occur in unbeatable markets. I argue that a belief in market efficiency cannot bear responsibility for our crisis since most investors do not believe that markets are either rational or unbeatable" Statman says.

Statman believes that free markets are markets where government organisations place little or no imprint on the financial behaviour of individuals and organisations or m......................

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