Coherent Market Hypothesis

Coherent Market Hypothesis

A hypothesis that the probability density function of the market may be determined by a combination of group sentiment and fundamental bias. Depending on combinations of these two factors, the market can be in one of four states: random walk, unstable transition, chaos, or coherence.

---

Coherent Market Hypothesis

A model on how markets work that purports to improve upon the efficient markets theory. It states that market movements may be predicted within certain broad limits, depending on a combination of investor sentiment and fundamental bias. The coherent market hypothesis claims that markets go through four phases: random walk, unstable transition, chaos, and coherence. The coherent markets hypothesis attempts to curb the perceived overstatements of random walk theory and the efficient markets theory. See also: Capital Market Theory.