The Perils of Back-Testing
Are the findings accidental?
The skeptics now have their skeptics.
The past 30 years has been the era of the doubters. Dozens of papers have documented cracks in the Efficient Markets Hypothesis. These range from single securities, such as 3Com's partial ownership of Palm receiving a higher market valuation in 2000 than 3Com did overall, to market segments, such as the higher performance enjoyed by value and momentum stocks, to entire marketplaces. Recent Nobel Laureate Robert Shiller, for example, argues that the U.S. stock market sometimes is irrationally priced.