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Doesn't the efficient market theory ensure that any outsized future returns are already reflected in the price?
by jogjayr 9y ago
Doesn't the efficient market theory ensure that any outsized future returns are already reflected in the price?
- ScottBurson 9y agoAny engineer knows that nothing is perfectly efficient.
- baq 9y agoan efficient market is a model that assumes the same information is available for all players, so don't put too much weight on it. it's an approximation that's sometimes useful.
- disnsj 9y agoWell doesn’t that make no sense at all? Through what mechanism could a market know about the future? The market isn’t God or an oracle. It’s just a bunch of actors going back and forth. You and I can’t predict the future, why would averaging out guesses be any better? And if we’re both using the average of our initials guesses to correct our guesses, then the spread is reduced.... which looks like less uncertainty when in fact nothing fundamental has changed! What the market is very good for is as a heuristic to solve the NP hard problem of how much to produce. (Misses first worked on this and then Hyek got the bank Of Sweden prize in economics).