SAMUELSON’S DICTUM AND THE STOCK MARKET

Abstract

Samuelson has offered the dictum that the stock market is ‘‘micro efficient’ ’ but ‘‘macro inefficient.’ ’ That is, the efficient markets hypothesis works much better for individual stocks than it does for the aggregate stock market. In this article, we review a strand of evidence in recent literature that supports Samuelson’s dictum and present one simple test, based on a regression and a simple scatter diagram, that vividly illustrates the truth in Samuelson’s dictum for the U.S. stock market data since 1926. (JEL G14) I