- published: 05 Apr 2012
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In finance, the efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.
There are three major versions of the hypothesis: "weak", "semi-strong", and "strong". The weak-form EMH claims that prices on traded assets (e.g., stocks, bonds, or property) already reflect all past publicly available information. The semi-strong-form EMH claims both that prices reflect all publicly available information and that prices instantly change to reflect new public information. The strong-form EMH additionally claims that prices instantly reflect even hidden or "insider" information. Critics have blamed the belief in rational markets for much of the late-2000s financial crisis. In response, proponents of the hypothesis have stated that market efficiency does not mean having no uncertainty about the future, that market efficiency is a simplification of the world which may not always hold true, and that the market is practically efficient for investment purposes for most individuals.
Benoît B. Mandelbrot (20 November 1924 – 14 October 2010) was a French American mathematician. Born in Poland, he moved to France with his family when he was a child. Mandelbrot spent much of his life living and working in the United States, and he acquired dual French and American citizenship.
Mandelbrot worked on a wide range of mathematical problems, including mathematical physics and quantitative finance, but is best known as the father of fractal geometry. He coined the term fractal and described the Mandelbrot set. Mandelbrot also wrote books and gave lectures aimed at the general public.
Mandelbrot spent most of his career at IBM's Thomas J. Watson Research Center, and was appointed as an IBM Fellow. He later became a Sterling Professor of Mathematical Sciences at Yale University, where he was the oldest professor in Yale's history to receive tenure. Mandelbrot also held positions at the Pacific Northwest National Laboratory, Université Lille Nord de France, Institute for Advanced Study and Centre National de la Recherche Scientifique.