Is the Efficient Market Hypothesis True? | Investing | U.S. News
The famed efficient market hypothesis, or EMH, is widely accepted by academics and modern investors. The hypothesis states that stock prices reflect all available information at any given time, making it impossible for investors to beat the market with any consistency.
Why, then, are there myriad examples of excess returns that should not exist if the EMH is true? To name three examples of results that seem to counter the theory: Returns vary widely across different days of the week, premarket and after-hours trading periods display mysterious return profiles, and even weather patterns strongly correlate with up and down days on Wall Street.
Here’s a look at the evidence of enduring inefficiencies in the stock market that seem to fly in the face of the vaunted efficient market hypothesis, and how everyday investors can better understand the theory:
- Large gains in after-hours trading.
- Sunny-day surges.
- TGIF on Wall Street.
- The consistent outperformance of gurus.
- What meme stocks say about the efficient market hypothesis.
- Implications of the efficient market hypothesis’s shortcomings.
via money.usnews.com
Many of these shortcomings are explained by Professor Smith’s famous Analogy of the Seagulls. Kind of too hard to explain at the moment, but I promise I’ll get around to it.