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Please support us at: https://www.patreon.com/garguniversity The efficient-market hypothesis posits that stock prices are a function of information and rational expectations, and that newly revealed information about a company's prospects is almost immediately reflected in the current stock price. This would imply that all publicly known information about a company, which obviously includes its price history, would already be reflected in the current price of the stock. Accordingly, changes in the stock price reflect release of new information, changes in the market generally, or random movements around the value that reflects the existing information set. Burton Malkiel, in his influential 1973 work A Random Walk Down Wall Street, claimed that stock prices could therefore not be accurately predicted by looking at price history. As a result, Malkiel argued, stock prices are best described by a statistical process called a "random walk" meaning each day's deviations from the central value are random and unpredictable. This led Malkiel to conclude that paying financial services persons to predict the market actually hurt, rather than helped, net portfolio return. A number of empirical tests support the notion that the theory applies generally, as most portfolios managed by professional stock predictors do not outperform the market average return after accounting for the managers' fees. While the efficient-market hypothesis finds favor among financial academics, but its critics point to instances in which actual market experience differs from the prediction-of-unpredictability the hypothesis implies. A large industry has grown up around the implication proposition that some analysts can predict stocks better than others; ironically that would be impossible under the Efficient Markets Hypothesis if the stock prediction industry did not offer something its customers believed to be of value.
