DFA's success is a problem for efficient markets theory, not proof of it

Reader comment on: The Efficient Markets Hypothesis Comeback

Submitted by Justin Fox (United States), Apr 14, 2010 18:34

DFA succeeds by taking advantage of what most of us would think of as market inefficiencies: the small-stock effect, the value effect, etc. Fama and Ken French, who have done a wonderful job of documenting these inefficiencies, prefer to call them "risk factors." But they've never really offered convincing explanations, especially in the case of value, of what these risks are. And DFA's decades of success would seem to indicate that it's not taking big risks; it's finding market inefficiencies.

Also, Cliff Asness was a Fama student and is a libertarian, but he has also written biting critiques of the idea that markets are perfectly efficient and that bubbles don't exist. You can believe in markets without believing they're perfectly efficient.


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Other reader comments on this item

Title By Date
⇒ DFA's success is a problem for efficient markets theory, not proof of it [121 words]Justin FoxApr 14, 2010 18:34
The theory works except when it does not. [87 words]LyleApr 14, 2010 18:32
I don't understand
[w/response] [248 words]
benApr 14, 2010 15:44
Not much of an investment strategy [64 words]benApr 14, 2010 21:20

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