[ExI] EMH and Popper's Oedipus Effect/was Re: Psychology of markets explanations

Dan dan_ust at yahoo.com
Mon Jun 22 15:46:29 UTC 2009

--- On Sat, 6/20/09, Stathis Papaioannou <stathisp at gmail.com> wrote:
> 2009/6/20 Rafal Smigrodzki <rafal.smigrodzki at gmail.com>
> > ### Does it? I thought that this is so only the the
> strong- or to a
> > lesser extent semi-strong form of the hypothesis. The
> weak form only
> > says that prices follow a random walk and analysis of
> past prices
> > cannot be used to reliably achieve above-market
> returns. I tend to
> > believe EMH in its weak form, aside from minor
> inconsistencies ( such
> > as high performance of low P/E stocks).
> I don't know about the validity of the parenthetical
> comment. If you
> look at historical financial data you will always find
> patterns; the
> problem is, the patterns may not repeat in future,
> especially if
> people think they can use them to make money.

There is what Popper called the Oedipus Effect -- when a prediction influences the outcome it predicts.  In this case, someone might predict, "You'll make a profit if you invest in those stocks" and a lot of people might follow that advice, driving the profit down to zero or even below zero.




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