In both of my finance and economics class, professors argue that the stock market is efficient at least in a "Semi-Strong" form. This means that all publicly available information is fully reflected in the current stock price, making future performance totally random.
In plain words, both techincal and fundamental information are useless in predicting future stock prices.
After some reading on the "efficient market hypothesis", it appears that one of its main arguements is the existence of arbitragers would eliminate any inefficiencies.
Now let's pause a moment and think about it ...
Arbitragers keeps the market efficient ...
Arbitragers makes money from the inefficiencies ...
Conclusion:
If the market is indeed efficient, arbitragers would starve because their efforts would yield no profit. The fact that there are arbitragers means the market must be inefficient.
So what is reality?
I believe the efficiency of the market and the number of arbitragers are in an evolutionary equilibrium. When the market is more efficient than the equilibrium, arbitrage opportunities would decrease, causing the population of arbitragers to shrink. The decline in arbitrager population will decrease the efficiency of the market, bring it back to balance. By:
Optimal Portfolios