The market efficiency theory as mathematical-statistic theory of the political economy proceeds as fundamental axiom from the market efficiency hypotheses.

Here there are 3 market efficiency hypotheses:

1. weak hypothesis: From the course processes of the past cannot be judged present and future.
2. medium strong hypothesis: All market-relevant publicly accessible information is already contained in the course.
3. strong hypothesis: All market-relevant information inclusive Insider information is already contained in the course.

The medium strong hypothesis seems most plausible to be. This was examined very in detail and got the confirmation by the fact that the reactions of the market became "“steeper"” always with ever higher efficiency by on-line Trading, i.e. the ideal picture of the instantanen reaction becomes ever more fair. In particular the peaks with the publication of the numbers purchase manager index of the University of Philadelphia and the University of Chicago speak for it.

Consequences

With application of the strong hypothesis the Nichtvorhersagbarkeit of the share quotations is the direct consequence. This seems plausible: If the share quotations would be predictable, the stock exchange, which meant a zero-sums game, would not function any longer. Then it would give only few winners and each quantity to losers, who would not know evenly the "“system"”. Since however the stock exchange functions, it would be proven that Insider cannot have all too large influence on the market.

With application directly that by fundamental analysis no over net yields can be gained, should the fundamental analysis follows the medium strong hypothesis efficiently among the market participants be spread. At times of the Internet this more and more might be the case. The information is then anyway all participants well-known and thus worthless.

With application directly that by technical analysis no over net yields can be gained, should the technical analysis follows the weak hypothesis efficiently among the market participants be spread. At times of the of high repute ones and high-quality technical periodicals with mass circulation such as Wall Street Journal (the USA) or Hoppenstedt or other in great quantities spread analyses Internet this might be long the case. The information is then as to be evaluated above mentioned like the fundamental information. Only new analysis techniques might give profits at short notice. The moreover one in little efficient niche markets these information is to achievement suitably by over net yields, not however to the analysis information to DAX and DOW Jones Derrivaten.

Critical view

The market efficiency theory has strengths and weaknesses.

The strengths

1. Refutation of the theory of the selffulfilling prophecy: If all run in the same direction, then a zero-sums game functions just as little as the Kniffeln with a only one gezinkten cube: All win automatically, whereupon NONE can win.
2. Good explanation of the phenomenon that with increasing efficiency of the stock broking, increasing efficiency of on-line Tradings and increasing efficiency of the spreading of fundamental information the course process runs ever more precipitously.

The weaknesses

1. The market efficiency theory goes from a complete Unvorhersagbarkeit of the courses made of random milling theory.
2. The market efficiency proceeds from the fallacy INFORMATION = KNOWLEDGE.

Example: As those surprisingly good job market data to 6. May were published, exploded the DOW Jones within seconds. This would confirm the center-strong hypothesis. The knowledge that these data were to be evaluated however short, oozed then only after the weekend with the market participants and the course sank very strongly however quite "“flat"” (inefficiently).

See also: Joint hypothesis

Articles in category "Market efficiency"

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