Important paper: Fama (1970)
An efficient market will always “fully reflect” available information, but in order to determine how the market should “fully reflect” this information, we need to determine investors’ risk preferences. Therefore, any test of the EMH is a test of both market efficiency and investors’ risk preferences. For this reason, the EMH, by itself, is not a well-defined and empirically refutable hypothesis.
Sewell (2006)
"First, any test of efficiency must assume an equilibrium model that defines normal security returns. If efficiency is rejected, this could be because the market is truly inefficient or because an incorrect equilibrium model has been assumed. This joint hypothesis problem means that market efficiency as such can never be rejected."
Campbell, Lo and MacKinlay (1997), page 24
"...any test of the EMH is a joint test of an equilibrium returns model and rational expectations (RE)."
Cuthbertson (1996)
"The notion of market efficiency is not a well-posed and empirically refutable hypothesis. To make it operational, one must specify additional structure, e.g., investors’ preferences, information structure, etc. But then a test of market efficiency becomes a test of several auxiliary hypotheses as well, and a rejection of such a joint hypothesis tells us little about which aspect of the joint hypothesis is inconsistent with the data."
Lo (2000) in Cootner (1964), page x
One of the reasons for this state of affairs is the fact that the EMH, by itself, is not a well-defined and empirically refutable hypothesis. To make it operational, one must specify additional structure, e.g. investors' preferences, information structure. But then a test of the EMH becomes a test of several auxiliary hypotheses as well, and a rejection of such a joint hypothesis tells us little about which aspect of the joint hypothesis is inconsistent with the data. Are stock prices too volatile because markets are inefficient, or is it due to risk aversion, or dividend smoothing? All three inferences are consistent with the data. Moreover, new statistical tests designed to distinguish among them will no doubt require auxiliary hypotheses of their own which, in turn, may be questioned."
Lo in Lo (1997), page xvii
"For the CAPM or the multifactor APT to be true, markets must be efficient."
"Asset-pricing models need the EMT. However, the notion of an efficient market is not affected by whether any particular asset-pricing theory is true. If investors preferred stocks with a high unsystematic risk, that would be fine: as long as all information was immediately reflected in prices, the EMT theory would be true."
Lofthouse (2001), page 91
"One of the reasons for this state of affairs is the fact that the Efficient Markets Hypothesis, by itself, is not a well-defined and empirically refutable hypothesis. To make it operational, one must specify additional structure, e.g., investor’ preferences, information structure, business conditions, etc. But then a test of the Efficient Markets Hypothesis becomes a test of several auxiliary hypotheses as well, and a rejection of such a joint hypothesis tells us little about which aspect of the joint hypothesis is inconsistent with the data. Are stock prices too volatile because markets are inefficient, or is it due to risk aversion, or dividend smoothing? All three inferences are consistent with the data. Moreover, new statistical tests designed to distinguish among them will no doubt require auxiliary hypotheses of their own which, in turn, may be questioned."
Lo and MacKinlay (1999), pages 6-7