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The Efficient Market Hypothesis and Its Critics Burton G. Malkiel (2003)

The Efficient Market Hypothesis and Its Critics Burton G. Malkiel (2003). Presented by: Septian Bayu K. 0806479080. Outline. Introduction A Nonrandom Walk Down Wall Street Predictable Pattern Based on Valuation Parameters

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The Efficient Market Hypothesis and Its Critics Burton G. Malkiel (2003)

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  1. The Efficient Market Hypothesis and Its CriticsBurton G. Malkiel (2003) Presented by: Septian Bayu K. 0806479080

  2. Outline • Introduction • A Nonrandom Walk Down Wall Street • Predictable Pattern Based on Valuation Parameters • Cross-Sectional Predictable Patterns Based on Firm Characteristics and Valuation Parameters • Seeming Irrefutable Cases of Inefficiency • The performance of Professional Investors • Conclusion

  3. Introduction • Accepting EMH • EMH and random walk • Intellectual dominance • Paper examination

  4. A Nonrandom Walk Down Wall Street • Short term momentum, including underreaction to new information • Long run return reversal • Seasonal and day-of-the-week patterns

  5. Predictable Patterns Based on Valuation Parameters (1) • Predicting future returns from initial dividends yields (exhibit 1.1) • Predicting market returns from initial price-earnings multiples (exhibit 1.2) • Other predictable time series patterns

  6. Predictable Patterns Based on Valuation Parameters (2) • Exhibit 1.1

  7. Predictable Patterns Based on Valuation Parameters (3) • Exhibit 1.2

  8. Cross-Sectional Predictable Patterns Based on Firm Characteristics and Valuation Parameters (1) • The size effect (exhibit 2) • Value stocks (exhibit 3) • The equity risk premium puzzle • Summarizing the “anomalies” and predictable patterns

  9. Cross-Sectional Predictable Patterns Based on Firm Characteristics and Valuation Parameters (2) • Exhibit 2

  10. Cross-Sectional Predictable Patterns Based on Firm Characteristics and Valuation Parameters (3) • Exhibit 3

  11. Seemingly Irrefutable Cases of Inefficiency • The market crash of October 1987 • The internet bubble of the late 1990s • Other illustrations of irrational pricing

  12. The Performance of Professional Investors (1) • Exhibit 4

  13. The Performance of Professional Investors (2) • Exhibit 5

  14. The Performance of Professional Investors (3) • Exhibit 6

  15. The Performance of Professional Investors (4) • Exhibit 7

  16. The Performance of Professional Investors (5) • Exhibit 8

  17. The Performance of Professional Investors (6) • Exhibit 9

  18. Conclusion • Market cannot be perfectly efficient • Whatever patterns or irrationalities, they are unlikely to persist would not provide extraordinary returns for investor

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