Reflections on the Efficient Market Hypothesis: 30 Years Later

Posted: 24 Nov 2004

See all articles by Burton G. Malkiel

Burton G. Malkiel

Princeton University - Bendheim Center for Finance; National Bureau of Economic Research (NBER)

Abstract

The evidence is overwhelming that active equity management is, in the words of Ellis (1998), a "loser's game." Switching from security to security accomplishes nothing but to increase transactions costs and harm performance. Thus, even if markets are less than fully efficient, indexing is likely to produce higher rates of return than active portfolio management. The most successful modern-day investor, Warren Buffett, sums up the advice in this paper with characteristic wisdom: "Most investors, both institutional and individual, will find that the best way to own common stocks ... is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) of the great majority of investment professionals."

Keywords: Index funds, active portfolio management, mutual funds, market efficiency

JEL Classification: G11, G14, G29

Suggested Citation

Malkiel, Burton G., Reflections on the Efficient Market Hypothesis: 30 Years Later. Financial Review, Vol. 40, No. 1, February 2005. Available at SSRN: https://ssrn.com/abstract=622883

Burton G. Malkiel (Contact Author)

Princeton University - Bendheim Center for Finance ( email )

26 Prospect Avenue
Princeton, NJ 08540
United States
609-258-6445 (Phone)
609-258-0771 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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