Presented by: Septian Bayu K. 0806479080 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 Cross-Sectional Predictable Patterns Based on Firm Characteristics and Valuation Parameters Seeming Irrefutable Cases of Inefficiency The performance of Professional Investors Conclusion

Introduction Accepting EMH EMH and random walk Intellectual dominance Paper examination

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

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

Predictable Patterns Based on Valuation Parameters (2) Exhibit 1.1

Predictable Patterns Based on Valuation Parameters (3) Exhibit 1.2

The size effect (exhibit 2) Value stocks (exhibit 3) 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

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

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

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

The Performance of Professional Investors (1) Exhibit 4

The Performance of Professional Investors (2) Exhibit 5

The Performance of Professional Investors (3) Exhibit 6

The Performance of Professional Investors (4) Exhibit 7

The Performance of Professional Investors (5) Exhibit 8

The Performance of Professional Investors (6) Exhibit 9

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