9. You see an article in the newspaper that details the performance of mu- tual

Question

9. You see an article in the newspaper that details the performance of mu- tual funds over the last five years. You see that, out of 5,600 actively managed mutual funds in the study, 104 outperformed the market in each of the last five years. The author of the article argues that these mutual funds are examples of market inefficiency. "If markets are effi- cient, you would expect to see mutual funds outperforming the market for short periods of time. But when more than 100 mutual funds are able to outperform the market in each of the last five years, you can no longer suppose that markets are truly efficient. Obviously, these 100 fund managers have figured out a way to beat the market every year." Do you think that this is evidence that markets are not efficient?

Explanation / Answer

I do not think that the markets are inefficient and do not buy the argument that only because of markets are inefficient the more mutual fund managers are able to beat the market for last five years. I completely disagree with the argument because the market efficiency is not that some one get profits for a long period than the market returns. Market efficiency is depending on how the securtiy regulations are regulated by the markets and the regulatory authority and how the information of the listed companies are disseminated in a timely manner. Here the majority of the mutual fund houses have got the benefit from the market is only because of their analysis of stocks with the company, industry, political, internation information. Now the information is available for all, but how one views and values is the important to succeed in the financial markets.

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