Hi! Can someone explain to me what is wrong with the statement below? Thanks!
Market pricing anomalies and behavioral biases are contrary to the existence of market efficiency.
(Persistent) market pricing anomalies are contrary to market efficiency: investors can use them to generate long-term, above-average, risk-adjusted returns.
There is no evidence that suggests that behavioral biases can be used to generate long-term, above-average, risk-adjusted returns, so behavioral biases don’t contradict market efficiency.
But mkt anamolies are temporary deviations, how come they are contrary to mkt efficiency??
I specified persistent market pricing anomalies; e.g., January effect.
They haven;t mentioned persistent on the curriculum, or is it there? I thought they didn’t violate efficiency, if not in line at the least.
Even if its an anomaly like jan effect, even then h come its against efficiency?
Because the historical evidence of large price increases in January should be priced into securities well before January: if you bump your head on the door jamb often enough, you start to learn to duck.
You’re awesome. One more question: if I am not mistaken, Weak Form EMH states all public information is built into prices and fundamental analysis can be used to generate profits. Semi-Strong EMH states all public information is built into prices but fundamental analysis cannot be used to generate profits. Strong EMH states all public and private information is built into prices and that fundamental analysis cannot be used. Also, technical analysis cannot generate profits in any circumstance under EMH. Correct?
You’re too kind.
Close (and I suspect you simply mistyped what you meant): Weak Form EMH states all _ trading _ information (i.e., price and volume data) is built into prices, so technical analysis cannot be used to generate profits. The rest is correct as written.
Thank you
You’re welcome.