Question

In the light of the empirical evidence on Efficient Markets Theory, critically evaluate the following statement, “stock market is micro efficient but macro inefficient”

Answer 1

Stock market is micro efficient but macro inefficient:
It is a dictum offered by Samuelson which states that efficient market hypothesis works better for individual stocks rather than the full market. Some firms in the market may have a highly positive expected growth of fundamental value, whereas other entities or the same entities at different times can have a highly negative expected growth of fundamental value. All the information available makes the stock following efficient market hypothesis as it can be seen in the price. At an aggregate level it is difficult to incorporate all the growth and declines of the companies. Changes in aggregate dividends is hard to predict. So it shows inefficiency at macro level.

Samuelson has proved this theory through a regression analysis and then plotting a scatter graph on the US firms data