"A random walk down Wall Street" is quite the contradiction of a book, though. It simultaneously claims that markets are so efficient that a lay-person cannot profit from them while acknowledging the existence of asset bubbles. The whole "efficient market hypothesis" to me seems much more like a religious belief among neoclassical finance types than anything actually scientific.
Furthermore, there's a fair amount of research that suggests that Brownian motion/random walk does not at all explain the movements of a stock's price [1][2][3]
> The whole "efficient market hypothesis" to me seems much more like a religious belief among neoclassical finance types than anything actually scientific.
Let's ask the creator of the efficient market hypothesis [1]:
What is the efficient-markets hypothesis and how good a working model is it?
Gene Fama: It’s a very simple statement: prices reflect all available information. Testing that turns out to be more difficult, but it’s a simple hypothesis.
Richard Thaler: I like to distinguish two aspects of it. One is whether you can beat the market. The other is whether prices are correct.
Gene Fama: It’s a model, so it’s not completely true. No models are completely true. They are approximations to the world. The question is: “For what purposes are they good approximations?” As far as I’m concerned, they’re good approximations for almost every purpose. I don’t know any investors who shouldn’t act as if markets are efficient. There are all kinds of tests, with respect to the response of prices to specific kinds of information, in which the hypothesis that prices adjust quickly to information looks very good. It’s a model—it’s not entirely always true, but it’s a good working model for most practical uses.
[blah blah blah]
The point is not that markets are efficient. They’re not. It’s just a model. The question is, “How inefficient are they?” I tend to give more weight to systematic things like failure to adjust completely to earnings announcements, or momentum, than to anecdotes, which are curiosity items rather than evidence.
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This does not sound like "religious belief" to me.
Let's ask the creator of the efficient market hypothesis [1]:
What is the efficient-markets hypothesis and how good a working model is it?
Gene Fama: It’s a very simple statement: prices reflect all available information. Testing that turns out to be more difficult, but it’s a simple hypothesis.
Richard Thaler: I like to distinguish two aspects of it. One is whether you can beat the market. The other is whether prices are correct.
Gene Fama: It’s a model, so it’s not completely true. No models are completely true. They are approximations to the world. The question is: “For what purposes are they good approximations?” As far as I’m concerned, they’re good approximations for almost every purpose. I don’t know any investors who shouldn’t act as if markets are efficient. There are all kinds of tests, with respect to the response of prices to specific kinds of information, in which the hypothesis that prices adjust quickly to information looks very good. It’s a model—it’s not entirely always true, but it’s a good working model for most practical uses.
[blah blah blah]
The point is not that markets are efficient. They’re not. It’s just a model. The question is, “How inefficient are they?” I tend to give more weight to systematic things like failure to adjust completely to earnings announcements, or momentum, than to anecdotes, which are curiosity items rather than evidence.
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This does not sound like "religious belief" to me.
[1] http://review.chicagobooth.edu/economics/2016/video/are-mark...