An examination of the critiques on efficient market hypothesis for portfolio management strategies.
Written in 2006; 3,220 words; 22 sources; MLA; $ 92.95
Paper Summary:
Many studies on the efficient market hypothesis (EMH) and portfolio management suggest that the majority of professional investment managers cannot regularly beat a buy-and-hold strategy on a risk-adjusted basis. This paper attempts to examine the critiques on the efficient market hypothesis and the trend of the investors, financial analysts and portfolio managers to gather information to obtain excess-return. It begins with a brief description of the efficient market hypothesis and an outline of the characteristics associated with it, followed by a brief description of the new critiques against this hypothesis. It also discusses the relevant patterns that predict an excess return adjusted to the risk as well as new strategies applied by the investors.
Outline
Introduction
Efficient Market Hypothesis
Under-Reaction to New Information
Technical Trading Rules
Contrarian Strategy
Seasonality Anomaly
Predictable Patterns Based on Valuation Parameters
Book Value-Market Value Ratio
Initial Dividend Yields
Initial Price-Earnings Multiples
Predictable Patterns Based on Firm Characteristics
Insider Trading Abnormal Profit
Emerging Markets
Conclusion
From the Paper:
"New conditions to beat the efficient market hypothesis has supported the shift away from market performance theories, based purely on mathematical or logical bases, to psychology and economics that offer some predictable patterns. (Mills, Roger p.37)
In fact the investment analysis still play an important role in decision-making concerning the purchase and sale of ordinary shares.(Arnold and Moizer 1984 p.195) The survey conducted by Arnold and Moizer (1984) suggests that the analyst use a common general pattern to appraise the ordinary shares using fundamental analysis like primary analysis technique to indentify shares over/under-valued. The other techniques, like technical analysis and beta anlysis, have a different purpose. The former is to determine the timing of the purchase and the latter is to evaluate the performance of portfolio management.(Arnold and Moizer, p.205)"
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