Handout 3f - Handout 3f Efficient Markets or Not?...

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Handout 3f – Efficient Markets or Not? Spring 2007 Page 1 of 2 “Beating the Market” and its Importance There is no debate that is more important on Wall Street than whether individual investors, brokerage houses or hedge funds can “beat the market” by picking stocks themselves. The term “beating the market” means that the percentage return on your individually-selected portfolio of stocks is higher than the percentage return on a broad index of stocks like the Dow Jones Industrial Average (DJIA) or the Standards and Poor (S & P) 500. If one can “beat the market” then you may want to pay someone to pick stocks or spend the time doing it yourself. However, if one cannot “beat the market” then you should simply place your savings in broad stock and bond index funds. The Efficient Markets Hypothesis The efficient market hypothesis was developed by Eugene Fama at the University of Chicago Graduate School of Business in the early 1960s. The efficient market hypothesis (EMH) states that it is not possible to consistently outperform the market by using any information that the
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Handout 3f - Handout 3f Efficient Markets or Not?...

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