EXACTLY!!! T4A, first of all, thanks for taking the time to put in such a thoughtful post. I hope all the others read it and give it as least some thought. You make excellent points and I dont' think I could have been as eloquent. I agree on the first moment only limitation. I think there are some models that attempt to combined EHM with adaptive systems. I remember seeing some a long time ago, but don't remember much about them since it's not my specialty. But I would guess since they haven't gained wide acceptance and popularity, most likely they met the fate of all other adaptations/modifications of EMHs, namely even though EMH doesn't do as well as we'd like, they do even worse. But your points are very valid. You are absolutely right. Indeed, I referred to this (although admittedly probably not as eloquently and clearly) before when I mentioned the difference between the pure old-time definition of market efficiency and that of Grossman and Stiglitz that is widely accepted now. Indeed, if we all believe markets are efficienct and the financial analysys is pointless, the markets won't be efficient any more. The G&S version states, in a nutshell, that they are efficient up to a point. That point is determined by information-gathering/transactions and other costs plus the risks taken. In other words, you CAN make money by trying to find under/overpriced securities, but you will spend a bunch on training, acquisition of info etc etc and will take the respective risks - in the end, you well reap rewards that will be commensurate with the efforts undertaken. Thus, no free lunch. What I was arguing above was more along the lines of saying that to get to a point where you can make that money, you have to be so good it's unlikely a dabbling daytrader making money is not simply lucky. ... that was a very thought-provoking post though... I might have to borrow a couple of your examples for my teaching
The question is very interesting indeed. Except, that alas, there is really no way to answer it except to simulate a similar change in a laboratory setting. The reason being that so many other things changed and coincided with the PDT rule you will not know whether to attribute anything to PDT or smth else. The only feasible way to "keep other things contant" is to run an economic experiment with before and after conditions and see what the effects are. Experimental economics is gaining popularity for that particular reason as evidenced by the recent Nobel awards etc. But I would bet if there were any noticeable effects, they were in small caps.
The data is out there, it's all available although may be costly. One month of intraday data is about $400 for nonacademic research from NYSE. I saw a study that shows how prices react when a CEO of some company is interviewed on MSNBC. Attention driven buying of small individual investors (proxied for by small size orders) drives prices higher, then large trades (pros) correct them and make money. I'd guess there's probably less of this going on after PDT.
With all due respect, this is utter BS. I'm sorry but if you are getting your knowledge and opinions from Financial Times, then you are best advised to keep them to yourself. that's assuming you are capable of comprehending the material in more advanced sources... <i> Investment talent is akin to an artistic quality, given only to a small minority of innately contrarian folk. There is too little of it about to cope with money management's expansion into a mass production industry. </i> Even that BS filled article still proves my point, there is indeed to little talent, and guess what comes next - they are not talking about daytraders there!!! And to blame the bubble on the efficient portfolio theory is total nonsense.
advanced? you mean finance textbooks/journals? RIIIGHT. Typical arrogant know-it-all academic, if you don't agree with them it's because you are a retard. right. and this coming from a typical specimen from that sector of the population which scores way below in the GRE than physicists, mathematicians or engineers. So it is a scientifically proved fact that economists have a lower IQ than, say, engineers. And then, these people try to bluff they have "advanced sources" LOL there are very smart people here, i don't doubt some of them will blow up, we are all as strong as our weakest point, but some of them i see potential, they will probably become millionaires and either retire and leave trading or become star hedge fund managers. because you say so? it wasn't the main cause, but it certainly was a contributing factor. please use your brains if you have any and don't just parrot what your professors spoon you in the mouth.
Te': Call it synchronization or not I was going to PM you today to invite you to start another thread like "The Tao of Publias" and "What is Trading?". Now I feel like I do not have to. This is the time bro. The time is ripe. I myself have ordered the books "Zen in the Art of Archery", "The Bhagavad Gita" and "Tao Te Ching" to learn from those good sources. The most I could benefit from these boards came from Publias' "zen-like" posts... And in fact, I do not feel there are other more relevant subjects pertaining the experience of trading. Trading truth is existential, not intellectual because of what I call the intellectualism paradox: "The observer cannot be the object and vice-versa." In other words, if you are thinking about and trying to conceptualize trading, you are probably not trading, because trading IS. Now, GordonGekko, Te'??? I could never imagine that was your alias... With best wishes, Greco
Vald- in that buzzy quote you have a market pro, who has probably hired and fired dozens of academics telling it like it is. Modern portfolio and emh contribute to the stupidity of a bubble. "It is ok to keep buying cisco because it is efficiently priced. " You respond with nothing. I thought you were more capable. But when you get hit with reality you seemed to have run away. This goes to the basic question what causes P/Es to expand. YOu would say the market participants see less risk or more growth on the horizon. I would say maybe, but perhaps we have recent MBA's running funds (to arrogant to see risk and too driven by incentives to not trade like monkeys), lots of retirement accounts chasing high returns, and a slick guys at Janus (knowing they were creating a bubble) and Fidelity (invest responsibly) just throwing money at markets. How can this be efficient. Next time you see a stock like Cisco with a 100 p/e, slowing growth, and fudge earnings are you going to think about putting on a backspread? Or will it always be efficiently priced like it was at 70. Finally, was the public correct to be investing at Nasdaq 5000. Or should we have been shorting it. How can that price have ever been efficient even for a minute when in reality the Nasdaq 100 was losing money according to Gaap. (Buy the way even if you say I could not have made money, I will not give it back and I took on very little risk to get it. )
Indeed, or contract. What does EMH do with money flow? Big inflows push stocks up, big redemptions- or a marked slowdown in inflows- can bring stocks down, just like the rubber ducky rises and declines with the water level in the bathtub. So what does this huge influence have to do with rational price discovery, if anything at all? Ever hear a mutual fund manager say "gee, I'd really like to put this block of cash to work, but I can't because all my stocks are already pushing fair value???" Oh wait I forgot, each member of the public is perfectly rational in terms of calculating the cross sectional impact of their individual financial contribution or withdrawal, and they are able to perfectly calculate the net effect of the other 100 million or so rational actors individually as well and then instantaneously perform the necessary calculations to rationally shape their maximal utility function accordingly.... pretty impressive for a world that loves Oprah, Jerry Springer and Baywatch
I don't think that a lot of investors watch the shows you mentioned, so what other cause might you suggest?