Efficient Market Hypothesis

Original Photography: master_scorpian

The efficient market hypothesis is a theory that asserts financial Markets are Efficient. Over the years three forms of efficiency have been proposed. If you are classically trained in economics or finance you will have had this theory rammed down your throat. If however you are in the industry you will probably think the EMH is a pile of garbage. As this quote suggests:

"I'd be a bum on the street with a tin cup if markets were efficient"

-Warren Buffett

Weak Form Efficient Market Hypothesis

Semi Strong Form Efficient Market Hypothesis

Strong Form Efficient Market Hypothesis

What do you think? Is the EMH pure rubbish?


Jim said...

Markets are about as efficient as investors are rational.

Trainee Trader said...

I think you are spot on Jim. I think Behavioural Finance makes a lot more sense to me than the EMH does. I also think there is a clear divide between Academia and Industry. Love the image at top of the post.

Max Higgins said...

Bank of America and Mr. Higgins missing $millions, It can happen to you, my fellow Americans