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Efficient Markets Theory: Wall Street
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The efficient-markets guys, meanwhile, not only had come to occupy the academic mainstream but ... had moved in on Wall Street. Not surprisingly, their initial relations with the Street had been hostile. What the professors were saying, after all, was that highly paid fund managers and analysts were not worth a dime. Some of the professors clearly reveled in that: In one famous mid-1960s exchange, a money manager asked MIT's Paul Cootner, "If you're so smart, why aren't you rich?" To which Cootner replied, "If you're so rich, why aren't you smart?"
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In the 1970s, efficient markets theory achieved peak influence within academia as one aspect of the rational expectations revolution in economic theory. The first edition of Burton Malkiel’s book A Random Walk Down Wall Street appeared early in this decade.
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[I]f the EMTMR theory were truly accurate, it would apply to media coverage as well as media relations. In other words, news coverage of companies in the financial realm should not matter to overall company performance. But thatâs a fallacy, too. Financial journalism is a filter in and of itself, regardless of PR, and that filter skews whether a story is newsworthy. For example, while the news staff at the Wall Street Journal is erudite and sophisticated, if thereâs not enough advertising for four sections of 24 pages, then the paper is smaller that day than it otherwise would have been and some stories never see the light of day. To filter whatâs worthy of space in a three-section WSJ, journalists use a variety of subjective measures to weed out stories that ÷ dependent solely on the size of the paper ÷ might otherwise have seen print on any other day.
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