4 ms·

What does it mean for a market to have inefficiencies?

by hoten 7y ago

coolspot 7y ago
Seriousness of wuhan virus was known since end of January, but stock market ignored it completely, raging into all-time highs till February 20th. Regular person could absolutely see it and be prepared. Even today market still doesn’t price in Italy-style or China-style lockdowns.
- zeroonetwothree 7y ago
  This is called hindsight bias
  - anm89 7y ago
    Claiming this after the fact could represent hindsight bias. It does not change the fact that the market had an inefficiency in pricing this information into many assets two weeks ago. If someone bought or sold assets based on a strategy based on this belief (and certainly at least some people did), then they exploited that perceived inefficiency correctly without hindsight.
  - yfljzs 7y ago
    I predicted this. I made 100% return on my $4000 investment. That's not hindsight bias.
- austhrow743 7y ago
  Wuhan virus mostly affects the elderly who are largely out of the workforce. It's not the virus that's disrupting markets it's the response, which no, regular people could not see coming. Even experts are commenting on how well China did to respond in such a drastic fashion. Plenty of countries still haven't done anything large scale to address it.
anm89 7y ago
In this usage it's more like saying that information was "inefficiently" or not fully priced or not fully accurately priced. I'm not arguing that the market mechanism is inefficient, but that the market convenes on prices which in the short term fail to account for some underlying reality. In an ideal world, markets should be perfectly efficient (near immediate) at exposing things which are misvalued because people can make money if they understand some fact that the market doesn't and then that fact will be accounted for. In reality they just converge on the average of beliefs weighted by how confident a given actor is for a given belief and how much money they have to put behind the belief, and people are extremely imperfect, especially when it comes to predicting the outcomes of complex systems. Given this, there exist all sorts off "inefficiencies", or times when the current state of the market fails to accurately account for some underlying reality which leaves an exploitable opportunity to buy or sell a mispriced asset.
Phillipharryt 7y ago
There are actions that stop people behaving in a way they would in a perfect market. Laws prohibiting certain sales, taxes affecting companies and investors, imperfect information disclosure, are a few of the big ones.

What does it mean for a market to have inefficiencies?

by hoten 7y ago

What does it mean for a market to have inefficiencies?

Seriousness of wuhan virus was known since end of January, but stock market ignored it completely, raging into all-time highs till February 20th. Regular person could absolutely see it and be prepared. Even today market still doesn’t price in Italy-style or China-style lockdowns.

zeroonetwothree 7y ago
This is called hindsight bias
- anm89 7y ago
  Claiming this after the fact could represent hindsight bias. It does not change the fact that the market had an inefficiency in pricing this information into many assets two weeks ago. If someone bought or sold assets based on a strategy based on this belief (and certainly at least some people did), then they exploited that perceived inefficiency correctly without hindsight.
- yfljzs 7y ago
  I predicted this. I made 100% return on my $4000 investment. That's not hindsight bias.
austhrow743 7y ago
Wuhan virus mostly affects the elderly who are largely out of the workforce. It's not the virus that's disrupting markets it's the response, which no, regular people could not see coming. Even experts are commenting on how well China did to respond in such a drastic fashion. Plenty of countries still haven't done anything large scale to address it.

anm89 7y ago

In this usage it's more like saying that information was "inefficiently" or not fully priced or not fully accurately priced. I'm not arguing that the market mechanism is inefficient, but that the market convenes on prices which in the short term fail to account for some underlying reality. In an ideal world, markets should be perfectly efficient (near immediate) at exposing things which are misvalued because people can make money if they understand some fact that the market doesn't and then that fact will be accounted for. In reality they just converge on the average of beliefs weighted by how confident a given actor is for a given belief and how much money they have to put behind the belief, and people are extremely imperfect, especially when it comes to predicting the outcomes of complex systems. Given this, there exist all sorts off "inefficiencies", or times when the current state of the market fails to accurately account for some underlying reality which leaves an exploitable opportunity to buy or sell a mispriced asset.

Phillipharryt 7y ago

There are actions that stop people behaving in a way they would in a perfect market. Laws prohibiting certain sales, taxes affecting companies and investors, imperfect information disclosure, are a few of the big ones.