The efficient market hypothesis was postulated more than 100 years ago by French mathematician Louis Bachelier. The theory holds that the market is always right and that it is never possible to earn steady trading profits by forecasting future price moves. It makes several forecasts, some of which are borne out in practice, such as it is hard to earn speculative profits. But the theory makes other forecasts that are less consistent with empirical evidence, including that return distributions are Gaussian and broadly stationary. The prices of common stocks have been shown to exhibit a much higher level of historical volatility than would have been justified by an apparently efficient market.
If We Don’t Believe Markets are “Efficient”, What Do We Believe
Louis Bachelier’s Theory of Speculation: The Origins of Modern Finance