Analyzing Market Efficiency in the Israeli Stock Market Through Fluid Reality Theory

This study examines the efficiency of the Israeli stock market, focusing on the Tel Aviv 25 (MAOF) Index from 1991 to 2005 through both an econometric analysis and the lens of Fluid Reality Theory. We apply tests of the Efficient Market Hypothesis (EMH) in its weak and semi-strong forms to identify any predictable patterns or anomalies in index returns. The empirical results reveal that the MAOF index was not fully informationally efficient during the sample period: a significant annual cycle and macroeconomic influences allowed for abnormal returns beyond a passive benchmark, consistent with findings in other emerging markets. We then interpret these market inefficiencies using Fluid Reality Theory, a systems-thinking framework which posits that market reality is fluid—continuously shaped by dynamic interactions rather than static equilibrium states. The integration of Ariel Fuchs’ Fluid Reality Theory with Kfir Seroussi’s econometric findings provides a nuanced understanding of why and how the Israeli market deviated from classical efficiency. The paper concludes that market efficiency is context-dependent and evolves over time, and that a fluid-dynamics perspective can better account for the adaptive, non-linear behavior observed in the Israeli stock market. Implications for economic theory and investment strategy are discussed, highlighting the value of transdisciplinary approaches in financial economics.