The tech stock bubble of the early 2000's, is a GREAT example of the prices of a sector going from very high to very low in a short period of time. As I understand the postulate of the Efficient Market Theory, this means that the true fair market price and value of tech stocks must have dropped as well. That is nonsense!
I would like a supporter of Efficient Markets to please explain how stock market bubbles and their bursting is consistent with an efficient market.
2007-02-03 03:05:05 · 1 answers · asked by Dennis H 4 in Business & Finance ➔ Investing
Well you've got the 1929 crash, the Oct. 1987 crash, and a tech bubble.
3 major inefficient incidences from the early times of the American capital markets onwards. 3 things out of what, 127 years, at least? That seems pretty efficient to me.
Nobody is arguing that the market is absolutely completely efficient though, not even Fama argues that, that would be absurd.
On another note though;
There's roughly estimated to be $30 billion in alpha per year in the world markets. With the two biggest quant funds, BGI and RT, taking in $8-$10 billion of alpha per year, whats that leave for other market participants? There's other things keeping you from beating the market than just EMT ;)
2007-02-03 06:16:19 · answer #1 · answered by Dr. Daniel 2 · 1⤊ 0⤋