This case is reserved for use by Columbia Business School Faculty only.
Can expert investment advisors select stocks that will outperform the returns attained through a random selection of stocks?
Can expert investment advisors select stocks that will outperform the returns attained through a random selection of stocks?
There is an hypothesis of market efficiency, often referred to as the random walk hypothesis of stock prices, that states that all information about a stock available to investors is fully and instantaneously reflected in its current price. To test this theory, Wall Street Journal reporter John Dorfman ran a series of contests comparing the performance of four stocks, each chosen by one of four experts, to four stocks chosen by throwing darts at the stock listings. In this case, students are presented with the results of this contest--the average percentage returns of the four stocks picked by the experts, the four picked by the darts, and the percentage change in the S&P 500 index over the specified period--and are asked to consider the validity of this theory.