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>No one is claiming that holding your money as cash is on the efficient frontier. But it would be in an efficient market. As more investors invest in more prof
by ddxxdd 7y ago
>No one is claiming that holding your money as cash is on the efficient frontier.
But it would be in an efficient market. As more investors invest in more profitable assets, the price of those assets rise, which makes the return on those assets fall relative to the initial cost. The Efficient Market Hypothesis, in it's strongest form, implies that every asset is on the efficient frontier.
- JanSt 7y agoNo, it won‘t. 1) You‘d still get a risk premium, because only known information can be priced into the stock. Unkown information is risk. 2) Capital is rare. There is no unlimited supply, so it‘s distributed between assets as well as available information allows. But there is still unsatisfied capital needs where the money can be employed more efficient than holding it cash.
- ddxxdd 7y agoSo an investor that can anticipate an increase in, decrease in, or general level of a) market risk, b) a market's risk premium, or c) available market capital, can predict market movements. Just because CFAs use fancy names for market imperfections doesn't mean that they're not exceptions to the EMH.