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We were taught explicitly in my (highly-ranked US) business school that stock performance is a random walk and success is luck.



I assume this means you were taught a very strong form of the efficient market hypothesis.

I believe there’s some good evidence for weak form efficient markets hypothesis in the most liquid markets, which implies you can’t make money by trading only on ‘technical signals’ in the price. This is what you might expect day traders to try to do, so in that sense it’s not a particularly surprising result this paper demonstrates.

But the consensus is, I think, that the strong form of the efficient market hypothesis might not be true in real life - being good at fundamental analysis can lead you to outperform the market.

Illiquid markets are a bit different again - you can potentially get ‘paid’ a lot more just for providing liquidity to the market there, which is different again.


This is an interesting concept to be teaching business school students.

Doesn't this amount to telling you your education is useless?


No, because running a business and stock trading are different things.


running a business is just the opposite side of the stock trading coin.

If the stocks themselves are random walks, then the underlying company performance must be random walks. If your education does indeed improve the outcomes of the business you manage and run then that would mean stock performance can be influenced by things other than luck.

Unless of course you are operating under the premise that company performance and stock performance are unrelated.


I don't know. But a business may perform predictably from the insider's point of view ans unpredictably from the outside.




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