https://www.quora.com/What-is-the-efficient-market-hypothesis https://dqydj.com/the-efficient-market-hypothesis-is-flawed/ https://www.quora.com/Why-is-the-efficient-market-hypothesis-flawed https://seekingalpha.com/article/4057329-debunking-flawed-efficient-market-hypothesis-assumptions https://www.forbes.com/sites/karlka...rong-in-defense-of-inefficiency/#efcf4164da1f Just in case you were wandering the next time someone says 'it's already priced into the market', the probability is that it hasn't been. Once you recognize that markets are both irrational and inefficient, trading and investing makes more sense and becomes a lot easier. EMH might be useful in theory but I'd be careful applying it in the real world.
Why is the efficient market hypothesis flawed Because if it were not flawed, it would be The Efficient Market Law. Hello. Pretty simple, really.
My strongest argument against the EMH is that it takes time for firms to unwind positions. Example: Let's say you're a hedge fund long 1,000,000 shares of IBM, at the moment valued at USD 121.40, for a total value of USD 121,400,000. Then, IBM badly misses expectations; they are over-valued, and you want out. You can't dump all these shares on the market at once without putting the price down on yourself; so, you run VWAP to strategically unload them over the course of a week. Ergo, for that week, there is information that has not yet been immediately priced in. Q.E.D.
If markets were truly efficient, then how could you possible trade them for profit with any consistency?
we won't be far from the truth if we say that for MAJORITY of us markets are efficient../collective 'we' by no means expands my personality / they are not efficient for Simons and the bunch! and for Dest, of course..and things will likely stay this way, maybe even forever..
The market over and under values companies ALL THE TIME. In what world was Tesla worth almost a thousand bucks? On the other hand AMD under $10 was a steal 6 months ago.
I wish markets were perfectly efficient, ie Gaussian. That way I could know exact odds on a particular outcome.
Then no one would play. We'd hit equilibrium. Everyone could play game theoretically optimal trading and there'd be no real edge. Any outcome would be noise. This is basically modern poker in a nutshell. There's virtually no quantifiable edge in high level play anymore. Your example of gaussian would imply some form of randomness still in play. A truly efficient market would have no randomness left in it. The probabilities would be almost certain. There are two forces at play here: in general the EMH is objectively true. If you look at the market as a whole it is efficient. However, individual issues, expirations, etc are not necessarily efficient. For an economist it's as simple as saying "see this graph of the top 9000 stocks is efficient". You can cherry pick a set of heavily traded issues and use them as evidence the market is efficient. For example, SPX is likely extremely efficient. However, if you look at any individual stock there is likely some inefficiency waiting to be taken advantage of.
To answer the OP more directly, the EMH is flawed because of the skew and kurtosis that shows up in essentially all price and return distributions. The causes of skew and kurtosis are due to the complexity of the underlying process. I would argue that financial markets are more complex than even weather. People get Nobel Prizes in Finance for trying to model skew and kurtosis behavior.
Skew? Kurtosis? Functions of a Normal Distribution? These are not necessities for any composition of efficient markets of the EMH. Y'all.