Question

You are a new portfolio manager, who after your first successful trading day on the job,...

You are a new portfolio manager, who after your first successful trading day on the job, goes out with you new boss for a celebratory drink. At the pub, you argue strongly for the strong form of the efficient market hypothesis. Your boss’s eyes narrow, and you begin to get nervous. What is strange about your argument?

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Answer #1

Under strong form of efficient market hypothesis, the market is highly efficient which means the market price of a stock reflects all price sensitive information whether it is public or private. Therefore, there is no way through which money managers, portfolio managers and other market experts can earn supernormal profit, not even through insider trading. When you strongly argue for strong form of efficient market hypothesis, you, simply washed off any chances of your company earning supernormal profit through the market trading thereby suspecting your company existence and motivation to operate, which indeed is quite strange.

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