It has been shown that an investor can profit from investing immediately when a company reports because it takes time for the market to absorb the new information. This goes against the EMH.
2. January Anomaly
The January effect goes against the EMH. Essentially the January effect indicates that as a result of tax-related moves, investors have been shown to profit by buying stocks in December as they are being sold for losses and then selling them again in January.
3. Price-Earnings Ratio
Investing using the P/E ratio valuation metric has been an anomaly against the EMH. It has been shown that investors can profit by investing in companies with a low P/E ratio.
4. Price-Earnings/Growth (PEG) Ratio
Investing using the PEG valuation metric has been anomaly against the EMH. It has been shown similar to the P/E ratio that investors profit by investing in companies with low PEG ratios.
5. Size Effect
Going against EMH, it has been shown that smaller companies, on a risk-adjusted basis, have greater returns their larger peers.
6. Neglected Firms
Neglected firms are firms that Wall Street analysts deem too small to cover. As a result, these firms tend to generate larger levels of return, negating the EMH.
Overall Conclusions About Each Form of the EMH
The weak-form EMH is supported by the tests and analysis done. Essentially, the weak-form holds that abnormal returns are not achievable with the use of past-historical data as a means to generate returns.
Semi-strong Form EMH
The semi-strong form EMH, at times, is both supported and not supported by the tests and analysis done. There has been some evidence that securities are not reflective of the semi-strong form EMH.
Strong Form EMH
It appears from the tests and analysis performed, that the strong-form EMH does hold. While insiders and specialists do have access to private information, SEC regulations forbid this information to be used.
Implications of Efficient Markets
MarketsAn understanding of neuroscience and the decision-making process provides a resolution to the decades-old debate between proponents and critics of the Efficient Market Hypothesis.
ETFs & Mutual FundsDeciding whether it's possible to attain above-average returns requires an understanding of EMH.
InvestingThough they're unpredictable and heavily contested, market anomalies can often work in an investor's favor.
InvestingFractal Market Hypothesis has emerged as an alternative to longstanding economic theories due to its ability to explain investor behavior during crises.
Managing WealthEfficient market hypothesis (EMH) is an idea partly developed in the 1960s by Eugene Fama. It states that it is impossible to beat the market because prices already incorporate and reflect all ...
InvestingCertain tradable anomalies persist in the stock market. Here are six that fascinate investors.
ETFs & Mutual FundsInvestopedia explores the working of behavioral funds, their benefits and risks, and an analysis of their past returns.
ETFs & Mutual FundsKey 20th-century financial theories changed the way investors viewed markets and created the circumstances in which ETFs could emerge.
MarketsAre the markets random or cyclical? It depends on who you ask. Here, we go over both sides of the argument.
TradingWhile the price-to-earnings ratio is commonly used for assessing stock prices, the price/earnings-to-growth ratio offers forecasting advantages that investors need to know.