I take the market-efficiency hypothesis to be the simple statement that security prices fully reflect all available information.

I take the market-efficiency hypothesis to be the simple statement that security prices fully reflect all available information.

The efficient market theory is one of the better models in the sense that it can be taken as true for every purpose I can think of. For investment purposes, there are very few investors that shouldn't behave as if markets are totally efficient.

I can't figure out why anyone invests in active management, so asking me about hedge funds is just an extreme version of the same question. Since I think everything is appropriately priced, my advice would be to avoid high fees. So you can forget about hedge funds.

Active management is a zero-sum game before cost, and the winners have to win at the expense of the losers.

After taking risk into account, do more managers than you’d see by chance outperform with persistence? Virtually every economist who studied this question answers with a resounding 'no.'

People would be a lot more skeptical if they understood that there is an incredible amount of chance in the results that you observe for active managers. So the distribution of outcomes is enormously wide - but that's exactly what you'd expect by chance with lots of active managers who hold imperfectly diversified portfolios. The really good portfolios contain a lot of really lucky picks, and the really bad portfolios contain a lot of really unlucky picks as well as some really bad ones.