Criticism of Eugene Fama's theory : Efficient market hypothesis

I recently had the opportunity to take an interest in Eugène Fama's work on the theory of market efficiency. It is a theory where markets are categorized into three types: the weak form efficiency, the semi-strong form efficiency and the strong form efficiency. A week form efficiency market represents a market where share prices reflect all the information contained in the price history, so it will be impossible to obtain abnormal returns by building strategies based on the price history. A semi-strong efficiency market reveals that share prices reflect only public information and not "internal information". Finally, a "perfect market" or a market of strong form efficiency is a market where share prices reflect all available information, both public and private. In this last form of efficiency, it therefore becomes impossible to make profits other than by chance since it is impossible to predict future prices. However, after reading this theory, I wondered whether it really reflected the reality of the markets and whether it was not ultimately questionable.

Indeed, Eugene Fama's theory questions the way prices are constituted on a financial market. This is a fundamental question for anyone wishing to enter the world of finance since the notion of profitability is directly linked to it. For weak form efficiency markets and according to the definition, it should therefore be admitted that chartist analyses are totally useless since all the information is already included in the current price. It is also useless to study past variations to predict future variations since they are only dependent on future information. This idea immediately seemed to me to be quite contradictory to the current methods used by investors to "predict" the future efficiency of the market. Moreover, it seems to be accepted that financial markets follow more or less regular "cycles" that depend not only on the information issued but also on the decisions of individual actors (please see the picture below). 

This leads us to one of the other possible criticisms of the theory of market efficiency: Eugene Fama assumes the atomicity of market actors. This immediately seemed to me to be totally out of the reality since investors do not occupy the same place, are not equivalent, do not have the same wishes and do not have access to the same information and opportunities on the financial markets. 

Then, depending on the semi-strong form efficiency markets, the analysis of public data would also be questioned since their analysis would not bring anything, assuming that all this information would be included in the price. To verify this theory, I studied a concrete case: please see below the share price of Alcatel, a French telecommunications company. This company was acquired in 2006 after a series of losses over several years. By mid-2000, we can clearly establish a correlation between the publication of the quarterly report and the sharp drop in Alcatel's share price, proving that for this company, the price did not include the information before it was discovered. Of course, Alcatel does not reflect all companies and it is likely that some of these publications and reports have had no effect on the price of other companies' shares.

Finally, I wondered how these "markets forms efficiency" are defined. According to the definition, for a market to be considered as a strong form efficiency market, it would have to be verified that the actors with an advantage (such as senior executives, business leaders or portfolio managers) in terms of information do not obtain abnormal returns. On the latter point, it also seemed a little absurd to me to consider that company directors and officers cannot abuse these powers to satisfy personal needs, even if it is illegal. This is one of the excesses of the system, which I have seen in some scandals such as those of the Xerox or Worldcom groups. In both cases, the figures of the two companies were manipulated in order to artificially inflate the share price by lying about the company's state of health. Thus, we can consider that strong form efficiency market cannot be verified since it seems that not all public and private information is known to everyone, and therefore does not necessarily enter into the price of companies' shares. 

In conclusion, I would say that the theory proposed in 1965 by Eugene Fama can serve as a theoretical basis to explain certain financial market behaviours, and this theory seems to have been accepted by the general public. However, it may be useful to add some details to update this theory and ask more concrete additional questions to explain market adjustment mechanisms. For example, how can we be sure that the information that circulates will reach all actors and that there will be no asymmetry of information on the whole market? And finally, how could we explain the differences in returns between investors if it is impossible according to this model to beat the market in the long term?