Abnormal Return of Warren Buffett's Portfolio Investments and the Stock Market Efficiency

Current research is dedicated to the study of return of Warren Buffett’s portfolio investments and return acquired by his followers, who undertake the strategy of copying his transactions. The research results lead to the conclusion that Buffett systematically beat the market, when he correctly chooses the objects for portfolio investments, the fact that contradicts the theory of market efficiency. Besides, the excess return of his followers means that his disclosed statements are underrated by the market because, otherwise, such information should have been fully and instantly reflected on the price of the asset making it impossible to gain abnormal return. As a result of our analysis Warren Buffett’s long term abnormal return amounts to 9.94% on average, specifically long term abnormal return of portfolio investments after their sales is missing due to insignificance of obtained findings. As for absolute return, it is lower than required by investor which determines the reason of stock sales. Our research also contains the testing of strategy implied by Buffett for use of market timing. However, on the basis of the results obtained we can not claim that market level of "undervalue" or "overvalue" will have an impact on decision of making portfolio investments. While testing market reaction on Buffett's disclosed information about his deals, we found out that there is significant excess return during first two days from quarterly reports publication. It allows us to draw a conclusion that there are market players who follows Buffet's investment activities and exploits disclosed information for personal ends. It was also proved that followers are able to earn long term abnormal return by using this type of information, however it is slightly lower than Buffet's abnormal return itself.