This is not true, and I want us to walk through why it isn't. In March of 1997, Andrei Shleifer and Robert Vishny published a paper titled (pdf) in the Journal of Finance. I think it's the most important finance paper of the past 15 years, something everyone even remotely connected to financial markets should become familiar with. It builds on and summarizes a decade long research project, research they conducted with people such as Joseph Lakonishok and Brad Delong. In it they say that the very smart and talented traders at hedge funds who will take prices that are out of line and bring them back into line, making a good fee and making prices reflect all available information, the very building block necessary for EMH to work, Specifically, if they are highly leveraged, and prices move against their position before they return to their fundamental value – if the market stays irrational longer than they can remain solvent –
Few economists have been successful investors, and quite a few have been disastrous failures. But after a narrow escape from disaster early in his investing career John Maynard Keynes made a fortune for his Cambridge college by speculating in futures markets It is a striking paradox that Keynes was among the most scathing of all economists in his assessment of the role of financial markets.
Louis Bachelier's Theory of Speculation
The first two criteria correspond, respectively, to weak and strong versions of the efficient markets hypothesis. Tobin argues that the weak form is generally satisfied on the grounds that "actively managed portfolios, allowance made for transactions costs, do not beat the market." He notes, however that efficiency in the second (strong form) sense is "by no means implied" by this, and that "market speculation multiplies several fold the underlying fundamental variability of dividends and earnings."
He used Brownian motion as a model for stock exchange performance
The massive overspending by Johnson and Nixon, combined with the steady debasing of the USD made the US's exit from Bretton Woods a fait accompli, only hastened by the speculation that it would happen, not caused by it.
Louis Bachelier | Wiki | Everipedia
"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done" (General Theory Ch 12, p142 in Google Book edition, Atlantic Publishers
which was part of his PhD thesis The Theory of Speculation ..
Hmm, two speculations about my psychology. This resort to ad hominem slightly increases my Bayesian estimate of the probability that I'm right. (For the record, I don't see how the answers to the questions of where Fama's EMH was derived from, and whether it is or isn't logically-equivalent to Quiggin's EMH, are affected by my potential levels of surprise, or whatever I place or don't place totemic significance on, I just don't think my inner states are that important to reality.)
Bachelier's contri- bution to nancial theory
"Rather, the impetus for the development of a theory came from the accumulation of evidence in the middle 1950s and early 1960s that the behaviour of common stock and other speculative prices could be well approximated by a random walk. Faced with the evidence, economists felt compelled to offer some rationalization.", page 8 of the pdf, page 389 of the original journal article in The Journal of Finance, Vol 25, No 2.