If behavioural finance is to replace the efficient markets hypothesis as the most widely accepted paradigm, it is not sufficient to simply find flaws with the EMH. Rather than representing a unified theory, behavioural finance often stands accused of consisting of little more than data mining for anomalies followed by the search for a behavioural explanation.
Fama (1998) concluded that "[m]arket efficiency survives the challenge from the literature on long-term return anomalies. Consistent with the market efficiency hypothesis that the anomalies are chance results, apparent overreaction to information is about as common as underreaction, and post-event continuation of pre-event abnormal returns is about as frequent as post-event reversal. Most important, consistent with the market efficiency prediction that apparent anomalies can be due to methodology, most long-term return anomalies tend to disappear with reasonable changes in technique."
Kahneman and Tversky have shown empirically that people are irrational in a consistent and correlated manner. However, the case for the EMH can be made even in situations where the trading strategies of investors are correlated. So long as there are some smart investors and arbitrage opportunities, they will exploit any mispricing and the irrational investors will lose money and eventually disappear from the market.
Martin Sewell