Transcription of The Efficient Market Hypothesis and its Critics
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The Efficient Market Hypothesis and its Critics
The Efficient Market Hypothesis and Its Critics by Burton G. Malkiel, Princeton University CEPS Working Paper No. 91 April 2003 I wish to thank J. Bradford De Long, Timothy Taylor, and Michael Waldman for their extremely helpful observations. While they may not agree with all of the conclusions in this paper, they have strengthened my arguments in important ways. The Efficient Market Hypothesis and Its Critics Burton G. Malkiel Abstract Revolutions often spawn counterrevolutions and the Efficient Market Hypothesis in finance is no exception. The intellectual dominance of the Efficient - Market revolution has more been challenged by economists who stress psychological and behavioral elements of stock-price determination and by econometricians who argue that stock returns are, to a considerable extent, predictable. This survey examines the attacks on the Efficient - Market Hypothesis and the relationship between predictability and efficiency.
Above all, we believe that financial markets are efficient because they don’t allow investors to earn above-average risk-adjusted returns. In short, we believe that $100 bills are not lying around for the taking, either by the professional or the amateur investor. What I do not argue is that the market pricing is always perfect. After the ...
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