Students and practitioners would ask: Do you really believe that the price of every security is always equal to its value? If so, how do you explain the presence and size of the active money-management industry? When I first started teaching, there was a lot of resistance to the ideas embedded in the efficient market hypothesis. They don’t care about making prices right. When they find stocks that are expensive (their price is more than their value), they sell and in the process push the price of the stock down toward its value. When these investors find stocks that are cheap (their price is less than their value), they buy and in the process push the price of the stock up toward its value. This is costly, and some people are better at it than others. Some investors spend time and money to research the value of stocks. Market efficiency arises from investors’ mercenary interest in making money.
