On Nov 12, 2009, at 1:17 PM, Matthias Wasser wrote:
> I thought it was the opposite - that EMH's truth rested on there
> being lots
> of (necessarily non-EMH-subscribing, for certain values of the EMH)
> active
> traders looking to gain the smallest advantage. If everyone assumed
> prices
> were correct, there would be a lot of arbitrage opportunities and
> EMH would
> be false.
There are several parts to this. One is - do markets quickly reflect the opinions of traders? And another is - are those opinions correct? On the first, it's almost trivially true: of course prices almost instantaneously reflect changes in the positions of market participants. The second - not at all. They're often way wrong. To quote myself in Wall Street, market prices are often efficiently reflecting nonsense.
Doug