A critique on efficient market hypothesis (EMH): Empirical evidence of return anomalies in 12 U.S. industry portfolios

This paper focuses on two major arguments the momentum effect and market-learns hypothesis concerning the validity of the Efficient Market Hypothesis are summarized. Six empirical experiments with 12 U.S. Industry Portfolio are conducted. They not only provide the evidence against some of the EMH assumptions, but also aim to address the formation of return anomalies. Of them, three are designed to assess the validity of EMH with different approaches (White Noise, Effectiveness, Forecastibility) that capture the essence of recent findings from the finance literature and the remaining two are to propose a TSSM that permits an alternative approach to assess presence of return anomalies by enabling investment shift between two markets. An extension of this research may beneficially contribute to the discourse of market efficiency hypothesis, to the rethinking of effectiveness and sophistication of active fund management, and, if possible, to the understanding of the formation of return anomalies on the industry-to-industry basis.