<p>uchicagoalum,</p>
<p>Just because, “EMT forms the basis of literally all of modern finance as an ideal type,” this tells us nothing about the validity of EMT as a theory, merely that it is the most convenient to apply. Also, Behavioral finance offers compelling evidence against EMT.</p>
<p>Also, when I said that, “[Levitt’s] methodology is suspect,” I didn’t mean interpretation of data. His method of research is itself flawed. He violates the 1st rule of econometrics: Formulate hypotheses BEFORE running regressions. Levitt works the other way around, which makes his results much more dynamic and impressive, but ultimately less convincing. </p>
<p>newmassdad,</p>
<p>Fama was not the first (or most important) to bring “economic theory to the analysis of financial markets.” Check out Bernstein’s “Capital Ideas,” a text used by the FinMath program at UChicago.</p>