From the Adaptive Market Hypothesis to Sustainable Investing for Long-term Value Creation

Abstract

Schoenmaker and Schramade (2019: 179) argue that the Adaptive Market Hypothesis (AMH) offers a more suitable framework for sustainable investing and long-term value creation (LTVC) than the Efficient Market Hypothesis (EMH). The goal of this thesis is to investigate “how” and “why” AMH serves as a better framework for LTVC than EMH. This thesis also explores a possible use of AMH in the transition from Sustainable Finance 1.0 to Sustainable Finance 2.0, in relation to UN Sustainable Development Goals, particularly UN SDG 8. The study demonstrates that AMH may be better aligned with Systems theory than EMH, superior to EMH when analysing the stock market’s volatility, takes into account the ability of investors to learn about new information that affects market prices, and provides a better description of the behaviour of stock returns than EMH. These findings give credence to the adoption of the Adaptive Market Hypothesis framework for sustainable investing and long-term value creation. As a solution to problems of the financial system in the United States, Lo (2017: 379), in line with the AMH, recommends the foundation of an independent agency, similar to the National Transportation Safety Board (NTSB) in the United States. The thesis findings imply that the foundation of the independent Sustainable Investing Agency (SIA) in Finland could facilitate a faster transition from Sustainable Finance 1.0 to Sustainable Finance 2.0, in line with UN SDGs.