[ExI] EMH

[Stathis Papaioannou]

2009/6/24 Dan <dan_ust at yahoo.com>

> > ### But all relevant data are never even known, much less
> > factored in.
>
> Exactly.  This should lead one to immediately question the EMH -- rather than look for ways to add epicycles to get it to work.

It's not so much relevant data as *available* data. It would certainly
be relevant that company A is planning a takeover of company B, but if
an announcement has not been made, this information won't be reflected
in company B's share price. Only if you have inside knowledge of the
takeover can you use this to beat the market.

> > ### Part of it was crude government insistence to jettison
> > sound
> > lending practices, part of it was in the manner of a Ponzi
> > scheme
> > where some participants knew it would explode but hoped to
> > realize
> > gains before (some did), part of it was lack of experience
> > with new
> > financial instruments, part was government interference
> > with bond
> > ratings, interest rates, part of it was rational
> > expectation of being
> > bailed out. Add to it the usual agent-principal problem,
> > the existence
> > of centrally-issued money, the long feedback inherent in
> > real estate
> > transactions, dearth of short-sellers (due to both
> > widespread
> > prejudice and government persecution) and voila, you get in
> > trouble.
> > Weak EMH says only you couldn't predict that from technical
> > analysis
> > of previous prices, but some smart people saw what was
> > going on, and
> > did beat the market.
>
> But all of these things should, according to the EMH, be taken into account, no?  IIRC, we've even seen one person here argue that government intervention won't matter because markets will somehow adjust and take this into account.  Were this so, there would never be any bad effects of anything on the market.  All agents would immediately factor in the bad effects and adjust their actions accordingly.

That the market will take into account all information is not good or
bad, it is simply the way the market works. It could be that the
information, whether due to a new government policy or anything else,
will have a bad effect on the economy. The market will duly absorb
this information and deliver the bad effect.


--
Stathis Papaioannou