10/06/2009 · Criticisms of Efficient Market Hypothesis

Stiglitz show that it is impossible for a market to be perfectly informationally efficient.

The Efficient-Market Hypothesis ..

The theme of this year's award and the Nobel committee pointed to Fama's ground-breaking work advancing the Efficient Market Hypothesis (EMH).

For an example of this kind of criticism, see J. Robinson,  (Cambridge, 1932), p. 10.

CiteSeerX — The Efficient Market Hypothesis and Its Critics

If a market is semi-strong efficient, the current market price is the best available unbiased predictor of a fair price, having regard to all publicly available information about the risk and return of an investment. The study of public information (and not just past prices) cannot yield consistent excess returns. This is a somewhat more controversial conclusion than that of the weak-form EMH, because it means that analysis – the systematic study of companies, sectors and the economy at large – cannot produce consistently higher returns than are justified by the risks involved. Such a finding calls into question the relevance and value of a large sector of the financial services industry, namely investment research and analysis.

DeBondt and Richard Thaler discovered that stock prices overreact; evidencing substantial weak form market inefficiencies.

Mr. Skeptic has linked to some strange sites, but a fair number did not seem to justify his ranting. Some were not in English. He labeled many things not mainstream thought as crackpot, even if it was from some of the most respected intellectuals alive. Here are a few examples of some of those "crackpot" sites.

Summers argues that many statistical tests of market efficiency have very low power in discriminating against plausible forms of inefficiency.

Investor Home - The Efficient Market Hypothesis

. This is the name given to the tendency of markets, sectors or individual shares following a period of sustained under-or out-performance to revert to a long-term average by means of a corresponding period of out- or under-performance. This was picked up in detailed research by De Bondt and Thaler (1985), who showed that, if for each year since 1933 a portfolio of ‘extreme winners’ (defined as the best-performing US shares over the past three years) was constructed, it would have shown poor returns over the following five years, while a portfolio of ‘extreme losers’ would have done very well over the same period.

The Efficient Market Hypothesis states that at any given time, ..

If, however, one considers the most important task of applied economics to be the discovery of the type of institutional structure that provides for the greatest coordination of individual plans and efforts, then the subjective character of the discipline is brought to the forefront. Here the goal of science is to aid men not in maximizing or minimizing some statistical average, but in eliminating or lessening the frustrations that occur when the plans of one individual come into conflict with those of another: For example, it is not the physical existence of capital on which the prosperity of society’s members depends but rather the position these goods play in the plans of acting individuals. One need not go so far as some members of the subjectivist school and argue that statistical investigations are of absolutely no value in the derivation of economic laws. It is sufficient to insist that the meaning of such measurements be constantly checked against the underlying human plans and purposes that they allegedly represent.

The Efficient Market Hypothesis on Trial: - UWG

The percentage of population living in public housing hit the all-time record of 87% in 1988-1990, construction ratio had to be reduced to 10000 units per year in 1989-1991 to avoid oversupply, leaving some estates unfinished, for example Yishun 4xx with its 8 blocks in middle of empty field.

The Efficient Market Hypothesis on Trial: ..

Mr. Skeptic's web site gives the appearance of thoroughly debunking Dennis and his efforts. is the operative word. Here is a final example of the criticisms of Dennis on Mr. Skeptic's site. He reproduces an anecdote from a person who once introduced Dennis to a crowd. The man wrote: