[ExI] Price changes and regulation

[Dan]

--- On Fri, 7/3/09, Stathis Papaioannou <stathisp at gmail.com> wrote:
> 2009/7/3 Dan <dan_ust at yahoo.com>:
>> That said, your point might still apply, but some
>> individuals do have better information, pay closer
>> attention, know what to look for, or are just better at
>> predicting market outcomes.  EMH presumes all actors pretty
>> much have the same information, do the same things with it,
>> have the same motives, and aim for the same outcomes.  Were
>> this so, one wonders why there would be any trading at all,
>> especially in assets.  After all, if everyone held the same
>> views and had the same information about asset prices --
>> even if this information were imperfect -- wouldn't one
>> expect them to have exactly the same behavior?  Why would
>> there be, e.g., both short and long positions on a given
>> asset?  Would would someone sell call or put options and
>> another person buy those?  Why would anyone sell or buy
.> futures?
> 
> I don't think the EMH assumes everyone thinks the same.
> Given a piece
> of information, the degree to which different traders
> regard it as
> positive or negative will determine the share price. This
> is what is
> meant by the claim that the market takes into account all
> the
> information: it takes the information and weights it for
> credibility
> and impact, according to what the market participants
> believe. There
> is in general no better way to make this assessment unless
> you are
> privy to special information that the market lacks.

Aren't you just arguing around my point?  Not everyone on a real market has the same information.  Not only are there differences in highly available information people are aware of, but some people have specialized information -- some of it, of course, they might be forbidden to use under current law -- that others lack.  (There's a vast literature on informational assymetry too.)

If you're just going to reduce EMH down to markets are efficient because they deal well within the constraints of imperfect information, information assymetries, market actors who are not pure homo ecnomicus types, time lags, etc., then I think you've watered it down enough so that it's impervious to criticism.  Don't you agree?  At that point, too, it says nothing important that wasn't already noted by people like Mises decades before EMH was formalated.  Surely, that's not what the people who came up with EMH were after?!
 
>> And, as a final escape, you might admit people have
>> different visions of the future (e.g., whether IBM will
>> trade higher or lower today) and different information, that
>> this still wouldn't lead to anyone making a profit.  Yet it
>> seems, empirically (and is not ruled out by correct theory),
>> that some people do not just hold different predictions but
>> actually hold better ones.  (Yes, there are also lucky
>> people, but luck would, all else being equal, evaporate over
>> the long haul, no?)
> 
> Studies of fund managers and stock pickers do in fact show
> that it is
> just luck which evaporates in the long run. There will
> always be those
> who appear to beat the index average time after time, but
> you would
> get that if you had a large number of people trying to
> predict the
> outcome of any series of random events. Given a thousand
> people trying
> to predict coin tosses, there will likely be one who
> predicts ten in a
> row correctly; but this person still has only a 1/2 chance
> of getting the 11th one right.

Yes, I've heard, but yet there are people like Buffet or people who run firms who do stick around for the long haul.  Now, it's possible that these people are just the really lucky types.  But this seems very unlikely given the knowable odds here.  Don't you think it's much more likely that, within limited scopes, there are some big differences in ability to forecast?  (And I'm not talking about people who are merely doing technical analysis.  I agree that technical analysis is probably all baloney -- just crunching past prices to get future prices, in the long run, is a losing bet.)

Regards,

Dan

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