Dealing with the Duhem--Quine thesis in financial economics: can causal holism help?

Acceptance of the Duhem--Quine thesis implies a recognition that empirical tests of individual hypotheses are in fact tests of individual hypotheses in conjunction with the networks from which those hypotheses are derived. This leads to a problem in the evaluation of disconfirming evidence: is it the individual hypothesis or the network that is refuted? This paper examines how financial economists deal with this 'joint-testing' problem in their empirical evaluation of the efficient markets hypothesis. Causal holists argue that the holistic testing they espouse circumvents the difficulties surrounding joint-testing problems. This paper assesses whether a causal holist approach can resolve the ambiguity surrounding the evidence against the efficient markets hypothesis. It concludes that, without a resolution of the ontological--epistemological tension in causal holism identified by Fleetwood (Cambridge Journal of Economics, 2002, vol. 26, 27--45) and a clearer outline of the nature of holistic testing, causal holism cannot help financial economists deal with the implications of the Duhem--Quine thesis for empirical testing. Copyright 2006, Oxford University Press.