School reels in the face of evidence against Efficient Market Hypothesis

In a shocking turn of events, new research suggests that the Efficient Market Hypothesis (EMH) is not the bedrock of modern finance it was considered to be. Post-doctoral researcher and youth lacrosse coach, Torvel Gudjhonsen’s paper titled “Inefficiencies in the birthplace of EMH: An analysis of 20 years of Chicago Booth iBid data”, raises several questions on EMH’s validity. In an exclusive interview with ChiBus, Torvel, a reserved but passionate academic, said “My research shows that bid prices and therefore the ‘return’ of a course does not incorporate all available information and I provide several instances of proof between phases, quarters and years.”

While Gudjonsen has quickly received praise from some quarters, others were quick to point out flaws. Jane Washington, notable economist and EMH proponent, said “I don’t even know where to begin! One obvious flaw is the Joint Hypothesis Problem - we don’t know if EMH is flawed or the pricing model being tested.” Gudjhonsen, however, dismissed this criticism “The Grades Are Pointless Model or GAPM has been used to predict returns for decades. Now the economist community decides to question it? Cleary EMH is the problem.”

While economists debate the theory, students at Booth are feeling the human fallout of the factors behind these results. Spring quarter bidding saw a bubble of unprecedented proportions driven by wild and irresponsible speculation by a few wealthy bidders resulting in the life 2 year savings of small investors at Booth being wiped out with few courses to show for it. Director of Academic Services Christine Gramhofer was spotted in the Winter Garden comforting visibly distraught students. “My ‘Why Booth?’ answer across the admissions process and two rounds of recruiting has revolved around Pricing Strategy. Now it’s closed for 26,000 points?? How can I afford that? My entire MBA life is a lie”, said inconsolable second year Terry Mallick. First years are also feeling the pinch. A. Noné Mays, co-chair of “The 30 Percent” an advocacy group for the Invisible 200, seethed “It’s not like we have a lot of extracurricular activities or parties to go to, and now we’re being priced out of academics too?”  Noné was speaking on the sidelines of a protest by The 30 Percent at Harper, which proved sadly ineffectual as everyone mistook them for undergrads until Student Life shut them down for not following section 139 subsection B of the Groups payment policy on their lunch purchases.

Source: “Inefficiencies in the birthplace of EMH: An analysis of 20 years of Chicago Booth iBid data”, Gudjhonsen et al., The Chicago Booth Alumni of St. Louis Journal of Economics, Mar 2017

Source: “Inefficiencies in the birthplace of EMH: An analysis of 20 years of Chicago Booth iBid data”, Gudjhonsen et al., The Chicago Booth Alumni of St. Louis Journal of Economics, Mar 2017

However, the latest bubble has proven to be a blessing for some. Less popular courses are seeing a sudden uptick of interest. For instance, the Law School’s “An Analysis of the History of Commercial Law - From Hammurabi to Modern Business Law” has seen its highest ever Booth enrollment of three students.

Do you know someone affected by the bubble? Do you have other stories that you believe we should be covering in this column? Contact one of the editors or email us at chibus@chicagobooth.edu.

The author is a co-chair of The 30 Percent and at the time of publishing of this article is still looking for a course to add.