Hard To Time Outperformance

The efficient market hypothesis asserts that financial markets are “informationally efficient”; that is, investors shouldn’t expect to consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made. However, we know that the market isn’t perfectly efficient.

In fact, as I explained in my Seeking Alpha series on the subject, it doesn’t hold for any of the three forms of market efficiency: strong; semi-strong; or weak. However, there’s a large body of evidence demonstrating it succeeds in the only way that really matters: There are fewer active managers that outperform appropriate risk-adjusted benchmarks, after expenses, than would be randomly expected. In addition, there’s little to no evidence of persistence of performance beyond the randomly expected.

Read the rest of the article on ETF.com.