Finance Wizard Burton Malkiel Defends The Efficient Market Hypothesis

Burton Malkiel, author of the finance classic A Random Walk Down Wall Street, was on CNBC this morning with Steve Liesman.

Malkiel is one of the minds behind the efficient market hypothesis (EMH), which many have argued became obsolete during the financial crisis because the “markets didn’t work.”

Liesman asked Malkiel about it.

“What it means is information gets reflected quickly,” said Malkiel explaining the EMH.  “You get a tabloid of prices that is very hard to beat.  In fact most managers don’t beat the index and those that do in one year aren’t usually the same ones that do in the next year.”

“What the efficient market hypothesis does not mean is that markets are always correct.  Markets are always wrong.  The point is nobody knows at any one time – the price is wrong, but nobody knows whether it’s too high or too low and the market is unbeatable, but that doesn’t mean it’s right.”

“Nobody can consistently beat the market,” said Malkiel.  “Over time the market is the only one that gets it right.”

Here’s the full interview from CNBC:

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