Efficient Market Hypothesis Research Papers - …
In addition, behavioral finance researchers challenge the efficient markets hypothesis on theoretical grounds by documenting both cognitive biases that drive investors' behavior away from rationality and limits to that prevent others from taking advantage of the cognitive biases (and, by doing so, keeping markets efficient).
Efficient Market Hypothesis | Researchomatic
The efficient markets hypothesis has historically been one of the main cornerstones of academic research. Proposed by the University of Chicago's Eugene Fama in the 1960's, the general concept of the efficient markets hypothesis is that financial markets are "informationally efficient"- in other words, that asset prices in financial markets reflect all relevant information about an asset. One implication of this hypothesis is that, since there is no persistent mispricing of assets, it is virtually impossible to consistently predict in order to "beat the market"- i.e. generate returns that are higher than the overall market on average without incurring more risk than the market.
According to the Efficient Market Hypothesis, stocks are priced according to their investment properties. Precisely, the securities prices reflect all the relevant the information available to the public (Sewell, 2011). Therefore, investors cannot use stock picking to beat the market indexes since markets are efficient. Similarly, since capital markets are considered efficient pricing machines, we cannot expect investors to get results that are superior to that of the overall market. It is vividly explained that over 70% of the funds transacted in the mutual accounts fail to beat the market (Sewell, 2011). As an explanation to this, individuals are better off handing over their money to mutual funds and invest rather than taking control of their own portfolio. Moreover, if markets are truly efficient, then all investors will be the same when it comes to investing in stocks since no one will have an advantage over the other.