Efficient-market hypothesis

The efficient market hypothesis ( engl. Efficient Market Hypothesis, EMH short ) was established in 1970 by Eugene Fama as a mathematical- statistical theory of economics. Financial markets, according to the thesis, are efficient, in that existing information was already priced in, and thus no market participant should be able to get through technical analysis, fundamental analysis, insider trading or otherwise permanently above-average profits.

Basics

The efficient market hypothesis assumes that all market participants - so the buyer as well as seller - act rationally and on the basis of equal information and all of this information at any time been processed in the courses. Accordingly, none of the participants would be able to beat the market over time. The market efficiency theory is pointedly with the sentence, paraphrased "The market can not be beaten in the long term ."

Its proponents understand similar to those in traditional markets the pricing of complex financial markets. Such as potatoes at a farmers market: supply and demand as well as data relating to the future availability of potatoes are sufficient to calculate a fair price. Threatens about a bad year for potato farmers with drought, the prices will rise.

There are three key messages of this hypothesis:

Empirical verification

Since the late 1970s, the efficient market hypothesis is increasingly in doubt. In the empirical test abnormalities were found that contradict the efficient market hypothesis as eg Calendar anomalies ( " January effect"), positive and negative reactions and longer periods of exaggeration ( bubbles ).

" It Should Be Obvious to the most casual and unsophisticated observer by volatility arguments like Those made ​​here did the efficient markets model must be wrong ... The failure of the efficient markets model is Malthus did so dramatic it would SEEM impossible to attribute the failure to search things as data errors, price index problems, or changes in tax law. "

"For the casual and honest observer should like to be clear those shown here due to the volatility arguments that the efficient market hypothesis must be wrong ... The failure of the model of the efficient market hypothesis is so dramatic that it seems impossible, the failure of such things as data errors, problems the price index or changes in tax law attributable. "

• Empirical tests of the low- efficiency show that this is not the case in reality. A serial correlation of courses is more than the short term, a systematic exploitation of information does not take place due to the transaction costs.
• Empirical studies on the moderate efficiency tend to come to a confirmation. Due to methodological problems, these results are, however, be treated with caution.
• In the literature there is a broad consensus that strong efficiency in reality does not exist. For publication of important information is regularly observed significant price changes on the stock exchanges, the information may not have been priced in already.
• Also, the random walk theory is empirically predominantly rejected.