ABSTRACT
This chapter outlines the view that it is not possible to ‘beat the market.’ What is generally meant by ‘beating the market’ is investing in a particular asset class and outperforming the relevant index for a given year. The idea that it is difficult to beat the market relies to a great extent on Efficient Markets Theory which dates from around the late ’60s. Shiller captures this well when he defines Efficient Markets Theory as claiming that “speculative asset prices such as stock prices always incorporate the best information about fundamental values and that prices change only because of good, sensible information.” If Efficient Markets Theory were exactly correct, then there should be a tight link between stock prices and the Net Present Value of the dividends. The ongoing decline after the first day must be explained if one is a complete devotee to the Efficient Markets Theory by suggesting that new information became available.
