ROI And Securities Malkiel, B. Article Review

In fact, Lowenstein's notion of efficiency is that market prices are always perfect reflections of true values because rational investors already erase most egregious discrepancies between price and value with their own strategies. Thus, the paradox is the issue and belief that if markets are efficient, then the most rational strategy is always to buy and hold low-cost broad-based securities; but if the market is indeed inefficient, then it is not sensible to invest in broad securities. The very nature of the market paradigm is, then whether the cup is half empty or half full, and one cannot find 100% agreement or proof for either position; but instead a series of examples that tend to buttress the argument depending on the nature and type of the security itself. Then, when one changes the dynamic of the hypothesis by adding a differing mix of securities,...

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One can also offer an alternative theory for the paradox -- chaos theory. In other words, have market conditions become so complex and variable that even the mere suggesting of volatility changes the experiment (think Schrodinger's cat). However, in the analysis of individual market scenarios, it does appear that one can use similar tools to Lowenstein in order to uncover what efficiencies may be inherent in a group of securities, and/or the way those securities are likely to perform based on individual factors. This, in turn, gives credence to the notion that the ROI for securities is highly dependent upon the elasticity of the market

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