[digz]

Having studied with the originators of the efficient market hypothesis (Fama), I regret to inform you that what you describe is not a feature of EMH but is rather frequently attributed to it in an attempt to discredit it. There is nothing that rationally follows EMH that leads to Pareto-optimal outcomes in society.

EMH means that well informed markets make sound decisions on the pricing of assets. This means that based on the current information available, markets are excellent at understanding the probability-weighted value of an asset. It doesn't mean that the outcome ends up being right, it means that it's fairly priced based on the information at hand. Nothing guaranteeing Pareto-optimal outcomes from that.

Furthermore, an investor giving 1.2M to a company is not an efficient market under any circumstance.

[phillmv]

I was critiquing "free markets are best" and not singularly EMH. I will grant that I've used terms imprecisely.

[gfodor]

You would think that by now the market would have decided upon the proper definition of the efficient market hypothesis.