If half of all actively managed mutual funds outperform the market indexes in any given year, the efficient market hypothesis cannot be valid.

Question

Quizplus · Accepted Answer

The efficient market hypothesis (EMH) suggests that all available information is already reflected in stock prices, making it impossible to consistently achieve higher returns than the overall market through stock selection or market timing. The fact that half of actively managed mutual funds might outperform the market in any given year can be attributed to chance rather than the ability to predict or beat the market consistently. Over time, the number of funds outperforming the market is expected to decrease when adjusting for risk and costs, which is consistent with the EMH.

If Half of All Actively Managed Mutual Funds Outperform the Market