The Durkin Investing Agency has been the best stock picker in the country for the past two years, Before this rise to fame occurred, the Durkin newsletter has 200 subscribers. Those subscribers beat the market consistently, earning substantially higher returns after adjustment for risk and transaction costs. Subscriptions have skyrocketed to 10,000. Now, when the Durkin Investing Agency recommends a stock, the price instantly rises several points. The subscribers currently earn only a normal return when they buy recommended stock because the price rises before anybody can act on the information. Briefly explain this phenomenon. Is Durkin's ability to pick stocks consistent with market efficiency?
According to the Efficient Market Hypothesis, individual stock prices react to all of the available information about them and no one has more information then another about this. So, it seems market efficiency is being made here, because the investors are getting the same average returns as most every other investor. Perhaps a few other, much larger scale information availability is occurring with other investors here, like through some research by a few big institutional investors on stocks P/E ratios and or other forecasting information?
Also, perhaps the stock pickers formula used by Durkin ...
Durkin's ability to pick stocks consistent with market efficiency is examined.