Education

Friday, 31 May 2019
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ASX Education: The inefficient market hypothesis

INEFFICIENT MARKET HYPOTHESIS

You may have heard of ‘EMH’, the ‘efficient market hypothesis’. Anyone who’s read the introduction to any text book on financial theory can tell you all about it.

EMH basically says that you can’t beat average returns because the markets are at all times “informationally efficient”, that is to say all prices reflect all available information at all times. One form of EMH, the “strong EMH” suggests that this efficiency of information extends beyond publicly known information to all information including insider information, which it has to be said, in Australia, in some of those small stocks, is probably not far off the mark.

The theory has been rubbished

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