Obviously, they are simply the contestants who happened to get lucky on the day of the event. (See the nearby box.) The analogy to efficient markets is clear. Under the hypothesis that any stock is fairly priced given all available information, any bet on a stock is simply a coin toss. There is equal likelihood of winning or losing the bet. However, if many investors using a variety of schemes make fair bets, statistically speaking, some of those investors will be lucky and win a great majority of the bets. For every big winner, there may be many big losers, but we never hear of these managers. The winners, though, turn up in The Wall Street Journal as the latest stock market gurus; then they can make a fortune publishing market newsletters. Our point is that after the fact there will have been at least one successful investment scheme. Adoubter will call the results luck, the successful investor will call it skill. The proper test would be to see whether the successful investors can repeat their performance in another period, yet this approach is rarely taken. III. Equilibrium In Capital Markets 12. Market Efficiency The McGraw−Hill Companies, 2001           CHAPTER 12 Market Efficiency 357     With these caveats in mind, we turn now to some of the empirical tests of the efficient market hypothesis.     CONCEPT C H E C K ☞ QUESTION 5 Fidelitys Magellan Fund outperformed the S&P 500 in 11 of the 13 years that Peter Lynch man- aged the fund, resulting in an average annual return more than 10% better than that of the index. Is Lynchs performance sufficient to dissuade you from a belief in efficient markets? If not, would any performance record be sufficient to dissuade you?       Tests of Predictability in Stock Market Returns   Returns over Short Horizons Early tests of efficient market were tests of the weak form. Could speculators find trends in past prices that would enable them to earn abnormal profits? This is essentially a test of the efficacy of technical analysis. The already cited work of Kendall and of Roberts,7 both of whom