[lbo-talk] "Bedlamite economics" and the EMH

c b cb31450 at gmail.com
Thu Nov 12 11:09:41 PST 2009


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

^^^^^^^ CB: Are the traders' opinions about correctness of prices the same as opinions about the efficiency of the market ? Does thinking the prices are correct mean the same thing as holding an EMH ?



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