Efficient market hypothesis scam

Can we all agree that the EMH (and frankly a fair amount of academic theory regarding financial markets) is just a bunch of bullsh*t? It's literally just some imaginative, wishful-thinking concoction of how the world and markets work to help ivory tower academics sleep at night. Maybe it's an okay framework for thinking about things, but any further than that, it's a complete waste of time. 

Not that it really matters whatsoever and I'm probably wasting my time here. On the other hand though, I'm sick of seeing or hearing talk about whether a market is "efficient" or not, whether markets are acting "efficiently", etc. Like, what do you even mean by that? How can you measure this efficiency that you presuppose to exist? Can't we just accept that market prices, movements, etc. are subjective and constantly changing to the extent that the concept of efficiency is at best futile and at worst disingenuous?

Probably wouldn't change much at all, except the cessation of overintellectualized, hollow claims about how markets function / are functioning...

I digress.


Ah, the Efficient Market Hypothesis (EMH), the financial world's equivalent of a Shakespearean drama – full of sound and fury, signifying... what exactly? Your frustration isn't unique; it's a sentiment echoed across many corners of Wall Street Oasis. Let's peel back the curtain on this academic spectacle and see what's really going on.

First off, EMH posits that all known information is already reflected in stock prices. Therefore, it's impossible to consistently achieve higher returns than the overall market through stock picking or market timing. Sounds neat on paper, right? But here's where the plot thickens: the real world is messier than a neatly typed-up research paper.

The critique you're voicing taps into a broader skepticism about EMH's applicability in the real, often irrational world of investing. For instance, the concept of market efficiency struggles to account for the anomalies and market behaviors observed over the decades. Behavioral finance has entered the scene, spotlighting how psychological factors can lead to irrational financial decisions, thus challenging the very foundation of EMH.

Moreover, the idea that markets are perfectly efficient overlooks the dynamic nature of information itself. Information isn't just lying around; it's collected, processed, and disseminated, often creating opportunities for those who can interpret and act on it swiftly. This process, inherently filled with human judgment and error, suggests that markets can never be fully efficient as EMH would have us believe.

The debate between EMH proponents and critics is akin to an endless tennis match, with compelling arguments on both sides. While EMH provides a useful framework for understanding market movements and pricing, it's crucial to recognize its limitations. The market is a complex beast, influenced by a myriad of factors beyond just available information.

In essence, while EMH offers a lens through which to view the markets, it's not the be-all and end-all. The financial markets are a tapestry woven from countless threads – economic indicators, investor sentiment, geopolitical events, and yes, even irrational exuberance. Acknowledging the limitations of EMH doesn't negate its value as a theoretical model; it simply grounds it in the reality of an unpredictable and ever-changing market landscape.

So, while EMH might not be the financial gospel, it's a piece of the puzzle. And in the grand scheme of things, understanding its role and limitations can only enhance one's perspective on the markets. After all, in the world of investing, knowledge is power – but so is skepticism.

Sources: Is Anyone Bullish on the Future of Asset Management???, Is Anyone Bullish on the Future of Asset Management???, From Heartbroken Undergrad to Elite Wall Street Warrior – My Story

I'm an AI bot trained on the most helpful WSO content across 17+ years.

That's the problem. Just because something is "academic" doesn't mean it's correct.

Efficiency is in the eye of the beholder at the end of the day. No amount of research can prove/disprove this, as there is nothing objective to prove/disprove.

To take the hypothesis as fact or otherwise imply some natural level of efficiency in other contexts, as some people, textbooks, etc. seem to do, is ludicrous. I suppose that's why it's called the Efficient Market Hypothesis and not the Efficient Market Fact...


Dude EMH generally holds true in the Long Run.

the guy telling you to read more research says that Fama never intended it to be some hard rule, but a thesis to how markets tend in the “Long Run” which is a perpetual ideal. It’s an intuition, not a rule.

but generally, ask any PM and desperation has reduced and opportunities for alpha have gone down dramatically over the past 10-20 years across all strategies. A simple observation of financial history says it’s way harder to make alpha today than 20 years ago. an opponent to EMH would say that with more players in the market there is more dispersion and alpha opportunities. This is a foolish remark.


The real problem is you blatantly don’t understand the concept you’re so upset about. Seriously go read the original research. Read the new stuff. You’re NGMI if this is the field you want to be in and you jump to conclusion like this. This is a research driven field.


Yes, that makes perfect sense. I suppose my gripe is less so with the EMH itself and more so with the application of it in some contexts. I fully understand the logic of it as a framework and agree it can be very useful in that context. But the notion that a market can be "perfectly efficient", or I suppose you could describe it as some sort of "stead state efficiency" (I.e., the market at any given moment is efficient according to some parameters) is kind of silly. And some sources, particularly textbooks, tend to treat this truly abstract and subjective concept as a determinable law of nature. That's where my real frustration lies. Hope that makes sense.


You’re literally an intern asking people on WSO to butcher your essay. Sit down


No market is 100% efficient, there is always insider trading or short selling or whatever, but that does mean the hypothesis is wrong, i think EMH is actually a really important guid line which gives you the perception of what might be possibly achieved in case of market returns or how would the market react to various new information. For instanace, im having this debate with a few people who have this notion that AI gonna change the markets for good and people will be able to achieve abnormal gains for ever, what they do not understand is that with any new technology the markets would become more efficient and it might get even harder to gain abnormal returns. EMH basically tells you its not easy to make money no matter what you know, since if you know probably someone else does to. 


Those that can’t beat the market teach. Those that can beat the market are practitioners.

Fama and French both have a deep financial interest in convincing you that their academic theories are correct.


No market is 100% efficient, but they are always trending there.  My knowledge is only valuable so long as you don't know it too.

Regarding the persistence of factors: Cliff had a great piece on it last spring: You're being compensated for risk others don't want to bear. Momentum? it works until you get your face ripped off. Value? tell me how many more parties the guy talking about how awesome Tesla is gets invited to than the guy who says US steal is 10% undervalued. (not investment advice, but US Steel has the coolest ticker ever)

The only difference between Asset Management and Investment Research is assets. I generally see somebody I know on TV on Bloomberg/CNBC etc. once or twice a week. This sounds cool, until I remind myself that I see somebody I know on ESPN five days a week.

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