“The baseball announcer has it, of course, conveniently all wrong. Ted Williams is due to hit because he hasn’t hit for seven days. That’s red noise. Ted Williams is hot, he’s sure to hit tomorrow because he’s been hitting for seven days. That’s blue noise. The better description of an efficient market with random movements, which is white noise, is in between.”

The above anecdote was made by economist Paul Samuelson (1915-2009) in a 2004 interview conducted by fellow Nobel Laureate Robert C. Merton (1944-) for the American Finance Association (AFA). Lauded for his many contributions and often hailed as the ‘last of the great general economists’, the interview regarded one of Samuelson’s main contributions to finance, work on the so-called efficient-market hypothesis.

The efficient-market hypothesis (EMH) states that asset prices fully reflect all available information in a market. That is, beating an efficient market consistently on a risk-adjusted basis should in theory be impossible…