| Efficient market hypothesis had become a dominant paradigm in finance because of many scholars' theoretical contribution, as long as many supported empirical evidence since t970s. However, with the rapid development of financial economics, a lot of evidences such as "calendar effect", "size effect"," irrational exuberance ","reverse effect" and so on which called anomalous, are arising. All of these seem to be inconsistent with EMH. Therefore the EMH underwent many critiques. Some scholars try to explain these "anomalous" with knowledge form other science. Kahneman and Smith think that understanding price behavior must research the process of decision-making and find the really process of decision-making does not like the one that the EMH supposed. They agree to explain these anomalous by psychology models.Research findings, which called behavioral finance, in this field continually enriched base on the criticism of EMH by many followers' endeavor. When the Neber economics prize was awarded to Kahneman and Smith, the EMH and even whole finance faced austere challenges which never met before. Some scholars thought that the controversy between EMH and BFH is incompatible, like fire and water. However, on the one hand, the reality is that the EMH still plays a dominant role in finance theory and practice activities. On the other hand, the BFH commendably explained the anomalous phenomenon, which EMH can explain. Nevertheless BFH is unable to substitute EMH. What the relationship between two theories? If these two theories are absolutely contrary, none of them must be correct and the other is wrong. So how can we explain there are so many contrary proofs in the process of EMH test? If they are complementary, how can we explain the conflict of their precondition?In order to solve the dilemma mentioned above, this paper includes six sections:The first part is introduction. In this section, the researching object, purpose, Study trends, technical line, probable innovations and defects of this paper are discussed. The target of this paper is to clarify the connection between two hypothesizes and reconcile them in a same frame with evolutionary and sociobiological knowledge.The second part is efficient market hypothesis. In this section the EMH's implication, theoretical fundaments, testing methods, achievements and the challenges are discussed. A market in which prices always full reflect available information is called efficient. That is to say, security price at any time is equal to its intrinsic value. The efficient markets hypothesis is based on three gradually relaxing basic hypotheses: first, Investors are rational. They processing available information based on Bayesian rule to maximize their utility, so they can evaluate stock price rationally; second, if investors aren't rational in some degree, the effect of irrational will be balanced each other by their random transactions, securities market is still efficient; Third, Even if irrational investors' behavior shows no difference, Rational Investors will eliminate former's effect by arbitrage, securities market is still efficient.The third part is behavior finance theory. The content of Behavior finance theory, its Emergence and Development, theoretical fundamental and the challenges upon EMH are discussed in this section. Fuller (2000) defined behavior finance theory as follow :(1) behavior finance theory is a reconciliation of psychology, decision-making theory, classical economics and finance; (2) behavior finance theory tries to explain anomalous which found in financial market. (3) Behavior finance studies the systematic bias during decision-making. Theoretical basis of behavior finance is bounded rational investors and emphasize their irrational behavior in this frame. They also believe that the bias Of investors is systematic and its effect on security price can not be clear up by arbitrage. Thus the efficient market is impossible. It is observed that the controversy between EMH and BFH focus on whether the market is efficient, but this rootstock is rational assumption.The fourth part is adaptive rationality assumption. As the linchpin of the research, in this section a new conception--adaptive rationality is proposed. Implications of adaptive rationality on the efficient marketâ… also are tested in this section.Nourishing form Evolutionary psychology, evolutionary economics, behavioral science, considering human's adaptive behavior, we propose a new perspective that reconciles the two opposing schools of thought in a natural and intellectually satisfying manner. The proposed reconciliation, which I call the "adaptive rationality", is that the human's rationality is affected by "internal factors" (such as intelligence etc.) and "external factors" (which we called decision environment). Human's rationality is the result of internal factors continuously adaptive to environment. The more the internal factors adaptive the external factors, the more rational one' behavior is, and Vice versa. The adaptive rationality inevitably is dynamic and formed during the development of internal factors adapting to the environment.Adaptive rationality emphasizes matching, dynamic and learning. This philosophy has been displayed in bounded rationality assumption which thinks people's rationality is bounded by their biology character. But often realize goal effectively. A decision model certainly matches specific environment in adaptive rational pattern. If the environment changes, it should come as no surprise that the heuristics of the old environment are not necessarily suited to the new one. In such cases, we observe "behavioral biases" - actions that are apparently ill-advised in the context in which we observe them. Once the "behavioral biases" are feed back, the irrational behavior will be improved, even be eliminated by learning actions.Adaptive rationality implicate that the market efficiency has the character of gradualness, instability and relativity. (1) Gradualness means that at the beginning of the security market founded the participants have litter knowledge of transactions, so that the market was inefficient. Whereas along with time changes, the investors know more about the security transactions, and their decision-making model will gradually adapt to the environment, the efficiency of market will improve gradually. (2) Instability means that the market inefficiency will be seen when the environment changes. Because the environment is dynamic the market efficiency is instable. (3) Relativity means that in general, investor's decision-making model is adaptive environment in some degree, utterly adapt or in-adapt seldom occur. So in general the market is efficient in some degree. Because the market efficiency is instable, positive and negative proof both can be found in market efficiency test research work.Fifth part is empirical research on adaptive efficiency market. In this section we test the adaptive market hypothesis with Autocorrelation test based on rolling sample. The test show that Chinese stock market's efficiency is gradual and fluctuant. At last we bring forward that the market efficiency should be measured by it's fluctuate range.Sixth part is recommendations based on adaptive rational. The purpose of the recommendations is tO help investors to make decision more rationally.Considering internal and external factors which effected investor's decision, the recommendations include securities regulation and individual investment. The former aims at creating a proper institutional environment, which facilitates rational decision. The later aims at improving adaptive capability of investor's decision model.
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