Market Efficiency: A Theoretical Distinction and So What? by Harry M. Markowitz
Market Efficiency: A Theoretical Distinction and So What?
by Harry M. Markowitz
The most recognized theories created by academics over the past few decades have serious flaws and have disproven. Amoung the problems are the simplified assumptions that are made. In this paper, Markowitz says about the Capital Asset Pricing Model (CAPM):
The CAPM is a thing of beauty. Thanks to one or another counterfactual assumption, it achieves clean and simple conclusions.
He then goes on to warn:
Now, 40 years later, in the face of the empirical problems with the implications of the model, we should be cognizant of the consequences of varying its convenient but unrealistic assumptions. In particular, we should be cognizant of what more realistic assumptions concerning investment constraints imply about how we should invest, value assets, and adjust for risk.
Market Efficiency A Theoretical Distinction and So What by Harry Markowitz.pdf
