Question by Yardbird: Is the Stock Market efficient?
According to the “efficient market” theory, all available information about a stock is already reflected in its price, therefore it is impossible to predict its future movements, since no one can predict the future. This is sometimes called the “random walk” theory, since stocks seem to move in completely random ways. For example, a company reports record earnings, yet its stock price falls (this is not unusual). A chimp throwing darts at the newspaper stock page can pick winning stocks at least as well as, if not better, than a stock professional. (I think this experiment has actually been tried.) The few professionals such as Peter Lynch or Warren Buffett are simply lucky. In addition, they established their reputations in past years when stock information was not so widely disseminated. Now, with the internet, all available information is truly available to all, so the markets are completely efficient. Do you believe this theory? Why?
Isn’t there anybody out there who will defend the “efficient market” theory? I thought some economists won the Nobel prize for it (?).
Answer by automaticslim
which stock market? U.S.? British? Klingon?
What do you think? Answer below!