Is the Efficient Market Hypothesis True?
I have no reason to doubt the basic premises of the efficient market hypothesis, but is there another reasonable explanation as to why it is difficult to outperform the market? After all, how does the efficient market hypothesis explain the stock market bubble of the latter half of the 1990’s? If stock prices were simply the result of the total sum of all information about the companies and their stocks, then stock bubbles shouldn’t happen—but they do happen. In the late 90’s, it was evident that a bubble was forming because stock prices were growing much faster than the underlying companies—you don’t have to be an economist or an analyst to know that this could not continue, and that stock prices would eventually decline significantly. Some have argued that information only affects the changes in prices, not their level. The problem that I have with this argument is that the old information should continually be telling investors that stock prices have already overshot their intrinsic
