2006-08-31 19:47:27 · 4 answers · asked by KIMARU A 1 in Business & Finance ➔ Investing
In finance, the efficient market hypothesis is that stock markets are "efficient" in the sense that the price of stock reflect all known information. But it implies that Technical Analysis techniques will not be able to consistently outgain the market.
And this, I think, is plain wrong.
2006-08-31 21:01:14 · answer #1 · answered by cordefr 7 · 1⤊ 1⤋
EMH is the whipping boy for every stock analyst selling advice or books, but actually it's never been refuted. All but the most extreme forms of EMH admit that stock prices may be under- or over-valued IN THE SHORT RUN. In the long run, stocks prices are completely rational; if they weren't, there would be no point in buying stocks, since price movements would be completely random. It follows that if there are stocks that are under or overvalued, it should be possible to profit from these "irrationalites." Most EMH advocates suggest a Value Index fund.
The most basic form of EMH is that the past movements of a stock bear no significant relationship to future movements. I've never seen any studies that refute this. This is the central claim of EMH, yet most critiques ignore it!
EMH also claims that there are strategies to maximize your returns while minimizing your risk; through a diversified portfolio or an index fund. Again, no one argues with this. Beta is a very useful measure of a fund or portfolio, since volatility reduces your returns.
2006-09-01 11:44:45 · answer #2 · answered by Yardbird 5 · 1⤊ 0⤋
You need to be more specific.
In its original form, it said that there exists a set of portfolios that are the most efficient use of your money. Subsequent theorists monkeyed with it and you have the mess we have today that the markets are efficient.
2006-09-01 02:26:16 · answer #3 · answered by OPM 7 · 0⤊ 0⤋
theory. bunk. close don't count except in horseshoes.
What about it?
2006-09-01 03:31:32 · answer #4 · answered by dredude52 6 · 0⤊ 0⤋