My experience has been directly the opposite. The next time you see panic distribution hit a stock, remember that these are humans selling, not machines. And they are driven by emotion, not efficiency theories. The stock market is not perfectly efficient. If it was, there would not be a market. It would simply be a clearing house.
Same here. Among other related courses, I took investment analysis and portfolio management courses in my MBA program in the early 80s. Dwelling on the efficient market hypothesis and CAPM was enough to convince me at that time that I did not want a career in the field. That's why I had gone into banking. I wish it had played out differently.
EMH does not profess to preclude using the stock market as a means of trading profitably. In simple terams it precludes using past prices as a platform for predicting future prices. There can and are other reasons for taking a position in a stock having nothing to do with it's past price behavior. I suggest you re-read my post. It seems as if you have not actually analyzed stiock market returns and therefore I don't see how you can have formed an opinion about EMH.
Trading, as in speculative trading, which 90% of us here are doing, is TOTALLY USEFUL! Provide liquidity, keep markets in order - Specs accept risk from those who wish to transfer it... Put it this way - without us, the price of corn would be $500 a bushel and a barrel of oil, god help us, would be $1000....
Completely incorrect on two counts. 1. Absolutely past prices can be used to predict future prices. The entire concept of "deviation from the mean", which is the basis of many excellent trading strategies and opportunities, is based on the probabilities of present and future prices in relation to past price action. 2. As I have made an excellent living for years analyzing stock market returns and price action, I do believe that I have some foundation for forming an opinion about EMH, thank you very much.
EMH assumes that the investors make always rational decisions. The fallacy of the theory is already implied in this premise. Rational ? Maybe sometimes, but not oten. There will be always opportunities for an astute trader to benefit from irrational decisions. I trust I will continue to be one of them !
Thanks for responding. That was unfortunate. The theme of the thead is market utility (stated in a productive way) and getting EMH down cold in interactive settings (meaning classrooms) really flushes out how to pick out where money is to be made. The heirarchy that builds on money, power and information is very key to making money. The information that is at the top is what drives things. It seems to divided into what is there in the NOW and near past as compared to what is being telegraphed. The information of intention. All that math comes down to errors and their correction. I do not forecast but I do front run the smart money and it's telegaphed forecasting and its marginal analysis of the related corrections. The old sigma n of the f sub i's. Independently created forecast errors on the same side by the smart money always telegraph the turns by the rate of correcting. It is like thinking of each day as a before, during and after settlement. Settlement comes raging onto the power desks (information hitting the powerful) who then have until close to "fix" stuff. And then at open the next day everything that leads to settlement is being input from the "outside" (this is the money on the lower level below power) until the moment of settlement again returns. Did anyone learn the multiple choice test answer for settlement time? Well who cares. Knowing how EMH makes the wold turn is not lectures or multiple choice or papers being written. It is learning how to make money by knowing how information telegraphs the opportunities. Money flows and provides the settlemen data, power dictates the resolution of the settlement problems (and opportunities). Then they sleep and, then, it starts over everyday of the business year. Front running the telegraph using the sentiment created by the power guys dictating resolutions is how to be where the money is to be made. They are trying reversion to balance and I'm the 3 beta guy who is looking at where the max money velocity is on wrong one sided forecasting. Infomation has two neighbors there at the top of the pile the technical and the sentiment. It comes down to pace and sentiment. Correcting wrong sidedness (sentiment) and jumping off the train (or reversing) when they try one more time to bring the train back to the station after overshooting it. Trading is a thing a person does to really collect the penalties others are paying to fix what is out of whack. When I walk in a room to say something. I ask one question usually. Then I say something short and sweet and then the games begin. The idea is to get the people paying to learn to get their money's worth to the extent, that after that, they are never the same again. That is done by answering thoughtful personal questions of the people who came to learn. People only learn by stepping out from where they are in their formal quest. They ask about what they see right in front of them. Making them get on the rocket is the mission. I ask about their skills in calculus as my only question. If sets the level of discourse and gets the dicussion way the heck away from probabilities. Does anyone know why the financial industry doesn't do settlement after hours? lol... Why did Greenspan always make his announcements after settlement? lol..... It might be neat to do some educating on ET. QED.
"All liquid securities are 99% efficiently priced... And, FOR PRACTICAL PURPOSES, are subject to the "random walk" hypothesis" complete and utter rubbish