Many less precise discussions of the efficient market theory
equate the theory with the property that speculative price changes exhibit a random walk around the fair expected return.
Rather, the efficient market theory
requires only an equal likelihood that prices are either too high or too low (no bias that would allow investors to earn excess returns).
(2.) Efficient market theory
in the weak-form assumes that the only information of interest is past share prices.
He puts forward reasons for, and evidence of, mispricing that is at odds with the notion of the efficient market theory
. For example, Internet stocks like eToys had stock capitalizations that exceeded their bricks-and-mortar competitors.
The above demonstration that the less-informed investors should earn higher rates of return than better-informed investors creates problems for efficient market theory
. If they consistently earn more than the informed investors, their wealth should come to be a steadily greater percentage of the funds invested in the market, and the informed investor's percentage of the market should steadily shrink, approaching zero if given enough time.
The efficient market theory
argues those changes are due to the fact that investors continuously evaluate all information when valuing a stock (Fama, 1974, 1991).
The chapter also harbors an utterly fuddled discussion of the Efficient Market Theory
. Here Kuttner seems ignorant of the central concept that stock prices reflect available information at a point in time and change with new information; he seems to think the Efficient Market Theory
argues that stock prices are "accurate."