Still, the existence of mispricings that are so large and persistent that academics -- rather than investors -- are the first to discover them deals a strong blow to the efficient markets theory
Widows and orphans, in conventional investment industry thinking, don't go long emerging markets, but correctly implementing efficient markets theory
, according to Basten, means that "even our most conservative investor earns a piece of the far end of the efficient frontier.
One of the more extreme abuses of the invisible hand has been efficient markets theory
stock market, the dividend-price ratio has never predicted dividend growth in accordance with the simple efficient markets theory.
Over this entire range, there is a distinct negative slope to the curve as the efficient markets theory would predict: Firms with lower dividend-price ratios did indeed have higher subsequent dividend growth, offering some evidence for micro-efficiency.
For readers familiar with the Efficient Markets Theory
, a prediction market is actually an "efficient" market in the "strong form" of the theory.
However, what new theory would take its place is not clear (it may be that just a minor alteration in the efficient markets theory is needed).
Part Four is an attack on the efficient markets theory.
At least some mention of the efficient markets theory
should be offered.
Then the semi-strong version of efficient markets theory
would argue that if one investor, or a set of investment experts can sense a mood, and the costs of "sensing" are low, then other competitive investors must be able to sense a mood as well; therefore, abnormal returns would be non-existent.