Inefficient Profits: An Examination of Efficient Market Hypothesis and Fundamental Analysis for Contemporary Investors
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This paper examines investment theory and strategies, specifically with regard to common stocks, in both historical and contemporary contexts. Specifically, it outlines some of the most prominent approaches to stock investing and includes data analysis to test how those approaches have fared in the last decade. Included is an overview of the Efficient Market Hypothesis and its implications for active investing. While it is accepted that the weak form of EMH holds true and that the strong form is somewhat of an overstatement, there is still much debate over the semi-strong form. Some proponents of fundamental analysis claim that given investment philosophies or strategies can consistently beat the market and thus contradict the semi-strong version of EMH. Past studies on these techniques are mentioned in conjunction with more recent analysis. The findings indicate that it is still possible to earn above average risk adjusted returns using fundamental approaches, especially value investing and the low P/E strategy.