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And finally, a word of caution about the EMH debate

Efficient Market Hypothesis

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Efficient-market hypothesis - Wikipedia

Speaking of the "Man Who Planted Trees", it really works. I bought BTU back in March at $49.87. I practically bought it at the tippy top. However, I soon afterward found this site, started learning Phil's methodology(and those in the strategy section) and began selling calls/puts regularly against my bad position. As of yesterday, I still own the original 100 shares, but have brought my basis down by over $11.00. Couldn't be happier, what started out as a really bad entry, I have managed to work down to a good basis. Had I not watched that video and learned your system, I would sold out of the position, and been kicking myself for making such a bad entry.

Critics of EMH have produced a wide range of arguments, of which the following is a summary.

Advisers have a huge role to play because of their job. They’re not there to create wealth. And we know they’re not there to pick stocks, you know, or time markets or do those traditional things we call active management – none of that is creating wealth anyway. The adviser’s role is to make sure the investors, who are supplying the financial capital, are getting their fair share. So I call it a defensive strategy. The economy creates the wealth, the adviser structures the investment solution that enables the investor to get a fair share and then brings discipline to the whole process.

The Efficient Market Hypothesis - CFA Level 1 | Investo…

Weak-form EMH

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.

If a market is weak-form efficient, there is no correlation between successive prices, so that excess returns cannot consistently be achieved through the study of past price movements. This kind of study is called or analysis, because it is based on the study of past price patterns without regard to any further background information.

CFA Level 1 - The Efficient Market Hypothesis

Strong-form EMH

He also deduced that “The mathematical expectation of the speculator is zero” 65 years before Samuelson (1965) explained efficient markets in terms of a martingale.

Hey Phil -- I want to thank you every chance I get for helping me to grow my previous portfolio to being profitable enough to pay off some debts my family had and left me with $1,000 left to use in the markets. You should know that your premium membership is amazing on many levels, You and your readers offer a ton of economic and statistical analysis that I was able to use in my clerical level job in finance. It's a shame that someone as talented and honest as you is not on television each night providing a true service to the investing public and not the clowns and hucksters that are talking up their books to dump on retail investors. Sorry for the long post. I had to say something to you that I never thought I would have the opportunity to. You helped put my family in an almost debt-free life through the stock and option plays that I made during my time as a customer of your service and that has made us very happy. You are a good man and I wish you and your family many years of joy and happiness. I wish I could do ads for you!

DeBondt and Richard Thaler discovered that stock prices overreact; evidencing substantial weak form market inefficiencies.
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  • Efficient Markets Hypothesis: History

    Fama identified three distinct levels (or ‘strengths’) at which a market might actually be efficient.

  • History of the efficient markets hypothesis ..

    Fama’s first of three review papers: “Efficient Capital Markets: A Review of Theory and Empirical Work”.

  • History of the efficient market hypothesis.

    Semi-strong-form EMH

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efficient market hypothesis - Investopedia

And, speaking of long-term picks, Matson is surprised that some investors during the past year appear to have forgotten the fundamentals of investing: owning equities long-term, diversifying and then rebalancing your portfolio. Equities should generally be held for 20 to 30 years. Gambling, forecasting or attempting to predict short-term performance can seriously erode the value of your portfolio.. Matson also suggests investing in small companies because they have the potential to offer about 3 to 4 percent more return compared to growth stocks. Not all stock market strategies may work and it should be noted that this is not a guarantee of positive gains.

CFA Level 1 - Weak, Semi-Strong and Strong EMH

However, as Shleifer (2000) put it, ‘strong statements portend reversals’ – and in the two decades following Jensen's statement, a growing volume of theoretical and empirical work either contradicted the EMH outright or sought at least to show that its case was ‘not proven’.

The importance of the efficient market hypothesis

If you are going to jump in and buy, hold on to it or just stay in it. Take for instance data published by the Center for Research and Security Pricing (CRSP) with respect to the , a stock market index representing the entire market cap of the New York Stock Exchange and other exchange equivalents. According to the historical data for the CRSP 1-10 index, the average 5-year annualized return after a new high since 1926 is 9.02%! Of course, past performance is no guarantee of future success. This index return information does not reflect actual investor results and no representation is made that your portfolio would experience similar results.

Importance of efficient market hypothesis - …

For about ten years after publication of Fama's classic exposition in 1970, the Efficient Markets Hypothesis dominated the academic and business scene. A steady stream of studies and articles, both theoretical and empirical in approach, almost unanimously tended to back up the findings of EMH. As Jensen (1978) wrote: ‘There is no other proposition in economics which has more solid empirical evidence supporting it than the EMH.’

Importance of Efficient Market Hypothesis Essay …

. Banz (1981), in a major study of long-term returns on US shares, was the first to systematically document what had been known anecdotally for some years – namely, that shares in companies with small market capitalisations (‘small caps’) tended to deliver higher returns than those of larger companies. Banz's work was followed by a series of broadly corroborative studies in the US, the UK and elsewhere. Strangely enough, the last twenty years of the twentieth century saw a sharp reversal of this trend, so that over the century as a whole the ‘small cap’ effect was much less marked. Whatever the reason or reasons for this phenomenon, clearly there was a discernible pattern or trend that persisted for far too long to be readily explained as a temporary distortion within the general context of EMH.

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