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| Subject: efficient market hypothesis In finance, the efficient-market hypothesis (EMH) asserts that financial markets are “informationally efficient”, or that prices on traded assets (e.g., stocks, bonds, or property) already reflect all known information, and instantly change to reflect new information. Therefore, according to theory, it is impossible to consistently outperform the market by using any information that the market already knows, except through luck. Information or news in the EMH is defined as anything that may affect prices that is unknowable in the present and thus appears randomly in the future. The hypothesis has been attacked lately by critics who blame belief in rational markets for much of the current financial crisis, with noted financial journalist Roger Lowenstein recently declaring “The upside of the current Great Recession is that it could drive a stake through the heart of the academic nostrum known as the efficient-market hypothesis.” (Wikipedia Jan 2010) Economic Theory By John Schroy, on June 17th, 2006 |  Leave a comment  The Efficient Market Hypothesis continues to impede understanding of how capital markets work. This hypothesis suggests that world capital markets are guided by crowds of rational, competing, profit-maximizers, each trying to predict future market values of individual securities. The Efficient Market Hypothesis has never been proven. Indeed, no serious attempt has ever been made to subject this hypothesis to scientific scrutiny. June 17th, 2006 | Print Article |  Email Article |  Topics: Bill Miller, earnings-per-share, efficient market hypothesis, Eugene Fama, executive stock options, intrinsic value, Investment Company Institute, Jeremy Siegel, Peter Lynch, Stock Buybacks, Wall Street Journal, Warren Buffett | Category: Economic Theory, featured | Leave a comment |  Short urlMorningstar ratings By John Schroy, on May 28th, 2006 | Leave a comment  Mutual funds are sold primarily on the basis of ‘performance’ measured by historical ‘total return’. The famous Morningstar ’star’ rating system is based on ‘total return’, in this case ‘risk-adjusted total return’ relative to funds of the same asset category. A general’s stars are a clear indication of rank. People presume that ‘five stars’ are better than ‘three stars’, just as they presume that a ‘five star general’ is higher ranked than a ‘three star general’. May 28th, 2006 | Print Article | Email Article | Topics: Baby Boomers, capital flow analysis, efficient market hypothesis, investment advisor, Morningstar, mutual funds, Nobel prize in economics, risk, Total Returns, US SEC, William Sharpe | Category: US SEC | Leave a comment | Short urlResearch notes By John Schroy, on October 23rd, 2004 | Leave a comment  Capital Flow Analysis is a technique for interpreting flow of funds accounts developed by John Oswin Schroy over the period 1998-2004 and published on the website, “Center for Capital Flow Analysis”. This article provides background notes that describe how, where, and by whom the methods of Capital Flow Analysis were developed. October 23rd, 2004 | Print Article | Email Article | Topics: Bankers Trust, Brazil, capital flow analysis, Cornell University, efficient market hypothesis, Federal Reserve Bank, Indonesia, irrationality axiom, John R. Evans, University of Utah, US SEC | Category: New Economic Theory | Leave a comment | Short urlFeatured articles on inside pages
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