Exchange specialists, corporate insiders and others with “monopolistic” information can profit from it in a consistent (although sometimes illegal) manner. But less stringent versions of the Efficient Market Hypothesis (EMH) are neither denied nor confirmed conclusively by existing evidence. The tests simply founder on the weakness of statistical procedures. One researcher estimates that it would take 1,200 years of data to detect, with currently available techniques, long-term pricing errors averaging 30 per cent.

An examination of the various arguments presented in support of the EMH reveals some weaknesses that may offer opportunities for astute investment professionals. Certain publicly available information may be less likely to be efficiently priced than other information, hence may propagate slowly enough to present profitable trading opportunities. Furthermore, given the guild system within which most investment professionals operate, consensus prices may sometimes be biased by “groupthink.” These biases offer superior rewards to investors who recognize them.

It would be a mistake, however, for professional investors to ignore the EMH altogether. The economic rationale in support of market efficiency is strong and carries valuable lessons for investors, who must operate in a highly competitive, if not strictly efficient, market.