This does not contradictwith the market being efficient or not.

If they earn profits in doing so, is thisfact inconsistent with market efficiency?

Would this invalidate the weak-formefficiency market hypothesis?

It’s hard to argue that this transformation in the profession was driven by events. True, the memory of 1929 was gradually receding, but there continued to be bull markets, with widespread tales of speculative excess, followed by bear markets. In 1973-4, for example, stocks lost 48 percent of their value. And the 1987 stock crash, in which the Dow plunged nearly 23 percent in a day for no clear reason, should have raised at least a few doubts about market rationality.

Efficient market hypothesis expect, at the margin, the net expected economicprofits is zero.

Would this invalidate the strong-form efficiencymarket hypothesis?

The most striking examples of apparent inconsistencies with the EMT are the 1987 stock market crash and the movement of Internet stock prices beginning in the late 1990s. Some economists, admittedly a minority, believe that the 1987 crash and the Internet run-up and fall are consistent with market efficiency. For example, Mark Mitchell and Jeffry Netter (1989) argued that the large market decline in the days before the market crash in 1987 was triggered by an initially rational response to an unanticipated tax proposal, which in turn triggered a temporary liquidity crunch (or panic) due to much higher sales volumes than the market was prepared to handle. The exchanges, traders, and regulators learned from this experience making markets more efficient. Burton Malkiel (2003a, 2003b), analyzing the Internet bubble, notes that Internet company values were difficult to determine, and while traders in most cases were wrong after the fact, there were no obvious unexploited arbitrage opportunities.

If economic profit is positive, itwould drives more potential firms into the market.

A majority of large-cap stock mutual fund managers fail to beat over long periods of time because there is much more information available on the larger companies than the smaller ones. Therefore, it takes more effort in the form of research and relative market risk to outperform the broad market indexes.

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


Modern Portfolio Theory - Matson Money

Do you consider yourself an active or a passive investor? What do you think of the Efficient Market Hypothesis? Can market be ‘beat’? What’s your strategy for investing?

Efficient Market Hypothesis - EMH - Investopedia

To be fair, finance theorists didn’t accept the efficient-market hypothesis merely because it was elegant, convenient and lucrative. They also produced a great deal of statistical evidence, which at first seemed strongly supportive. But this evidence was of an oddly limited form. Finance economists rarely asked the seemingly obvious (though not easily answered) question of whether asset prices made sense given real-world fundamentals like earnings. Instead, they asked only whether asset prices made sense given other asset prices. Larry Summers, now the top economic adviser in the Obama administration, once mocked finance professors with a parable about “ketchup economists” who “have shown that two-quart bottles of ketchup invariably sell for exactly twice as much as one-quart bottles of ketchup,” and conclude from this that the ketchup market is perfectly efficient.

The efficient market hypothesis ..

All of that points to one conclusion: there is a way to beat the market. It may be temporary, it may be difficult, and it may take patience – but there has to be a way. Even if that ‘way’ can be captured by only 1% of investors, the Efficient Market Hypothesis is still disproved.

markowitz - Does Modern Portfolio Theory align with …

It is then reasonable to hope that the expected return given by the Markowitz algorithm for your chosen portfolio will be the return that would actually have been obtained by this rebalancing strategy in the past, and thus also, by hypothesis, in the future. Unfortunately this is not the case; the expected return assigned by the algorithm to each portfolio is always an over-estimate of the true long term return of the rebalanced portfolio. Since this discrepancy increases as the standard deviation of the portfolio increases, the Markowitz efficient frontier always exaggerates the true long term benefit of bearing increasing risk. The moral here is to be wary of the rightmost part of the curve.