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

[Eubulides]

Doug Henwood wrote:
> 
> 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

==============

The formalized version of that last sentence being:

http://ideas.repec.org/a/aea/aecrev/v70y1980i3p393-408.html

On the Impossibility of Informationally Efficient Markets
Grossman, Sanford J
Stiglitz, Joseph E