For about ten years after publication of Fama's classic exposition in 1970, the Efficient Markets Hypothesis dominated the academic and business scene. A steady stream of studies and articles, both theoretical and empirical in approach, almost unanimously tended to back up the findings of EMH. As Jensen (1978) wrote: ‘There is no other proposition in economics which has more solid empirical evidence supporting it than the EMH.’
If a market is strong-form efficient, the current market price is the best available unbiased predictor of a fair price, having regard to all relevant information, whether the information is in the public domain or not. As we have seen, this implies that excess returns cannot consistently be achieved even by trading on inside information. This does prompt the interesting observation that must be the first to trade on the inside information and hence make an excess return. Attractive as this line of reasoning may be in theory, it is unfortunately well-nigh impossible to test it in practice with any degree of academic rigour.
(It was recorded afterwards.)A book on "sea mysteries" or the "BermudaTriangle" might tell us that the yacht Connemara IV was founddrifting crewless, southeast of Bermuda, on September 26, 1955.
For example, "Allowing abortion in the first week of pregnancywould lead to allowing it in the ninth month." Or, "If welegalize marijuana, then more people will try heroin." Or,"If I make an exception for you then I'll have to make anexception for everyone."
Similarly, "Because we allow terminally ill patients to useheroin, we should allow everyone to use heroin."It is also possible to under-generalize.
(Sequence is not causation.) For example, "Beforewomen got the vote, there were no nuclear weapons." Or,"Every time my brother Bill accompanies me to Fenway Park, theRed Sox are sure to lose." Essentially, these are arguments that the sun goes down becausewe've turned on the street lights.
While being quizzed, she explained that she hadn't been sure,herself, until she noticed that it had a little man in the cockpit,just like the little model airplane at the training class.
"A man who had killed both of his grandmothers declared himselfrehabilitated, on the grounds that he could not conceivably repeat hisoffense in the absence of any further grandmothers."
-- "Ports Of Call" by Jack Vance
For example, this debate:
"I believe it is always wrong to oppose the law by breakingit."
"Such a position is odious: it implies that you would nothave supported Martin Luther King."
"Are you saying that cryptography legislation is as importantas the struggle for Black liberation ?
Therefore, the broader the mind, the shallower itis."Or, "We have pure food and drug laws; why can't we have lawsto keep movie-makers from giving us filth ?"
Thirty three sevens is not.)Or: "After treatment with the drug, one-third of the mice werecured, one-third died, and the third mouse escaped." Does this meanthat if we treated a thousand mice, 333 would be cured ?
We knowthat electrons can jump from orbit to orbit; so we must look toancient records for sightings of planets jumping from orbit to orbitalso."Or, "Minds, like rivers, can be broad.
The "cell phones cause brain cancer"reports are even sillier, with the supposed increase in risk being atmost one or two cancers per 100,000 people per year.
For example, there are a number of Creationist authors who say they"used to be evolutionists", but the scientists who haverated their books haven't noticed any expertise about evolution.
The existence of life on other planets is fast becomingcertainty !"Another example: arguing at length that your religion is of greathelp to many people.