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The efficient market hypothesis is the biggest lie in modern history. Bubbles don't happen in efficient markets.
by woeirua 6y ago
The efficient market hypothesis is the biggest lie in modern history. Bubbles don't happen in efficient markets.
- deleted 6y ago[deleted]
- MiroF 6y ago> Bubbles don't happen in efficient markets. But how do you know a bubble ahead of time?
- bumby 6y agoI’m reminded of some research I tried to get published a while back. One editor comment came back with a suggestion to reject simply with “this appears to contradict the EMH.” No further explanation. Well, no shit. It said so right in the introduction. I think this is what’s called “theory induced blindness”
- nickff 6y agoThe (strong form) efficient market hypothesis (EMH) doesn't state or require that there be no bubbles. The EMH means that bubbles are extremely hard to predict/see, largely because of the market's feedback loop.
- 01100011 6y agoIs there a distinction between an efficient market and a efficient market subject to propagation delays? It would seem that there is a limit to how fast information can be disseminated and the resulting reaction time. The market may always tend towards efficiency at some time scales and not at others.
- refurb 6y agoThe efficient market hypothesis just states the market represents the sum total of all available information. If everyone thinks stocks will go up, then the efficient market hypothesis would support a bubble.
- Fordec 6y agoResearch paper: Markets are efficient if and only if P=NP https://arxiv.org/abs/1002.2284 https://arxiv.org/abs/1002.2284
- ClumsyPilot 6y agoThis is going to be great fodder for some debates, thank you very much.
- snovv_crash 6y agoCan this be used to prove P != NP ?
- MiroF 6y agoI am incredibly skeptical of the "iff" statement. How the hell could it be possible that P=NP -> Markets are efficient.
- Fordec 6y agoBecause if P=NP the vast array of the majority of known "hard" problem becomes trivial to solve, not just market information. That's the reason P=NP is considered so consequential to society in many ways if it does happen to be true and implementable.
- MiroF 6y agoBut what about the "P=NP but nobody knows how to do it yet" case.
- Fordec 6y agoWhich implies that the markets, up to today, aren't efficient. Because nobody knows how to do it yet.
- MiroF 6y agoSo then it appears it is possible that P = NP and markets are not efficient, so it is not true that "Markets are efficient if and only if P=NP" because P = NP !-> Markets are efficient
- bryananderson 6y agoThis is a misunderstanding of the EMH. “Efficient” does not mean “rational” or “always right”. It simply means that, at any time, the difference between actual prices and “rational” prices is random. It’s important to understand that efficiency is something that markets approximate. The EMH may be more “true” for you than for someone with a dedicated fiber line between the NYSE and the CME. Here’s Burton Malkiel in more depth about what the EMH actually means: https://www.forbes.com/sites/quora/2014/06/13/what-does-the-efficient-market-hypothesis-have-to-say-about-asset-bubbles/#12b71e577c4b https://www.forbes.com/sites/quora/2014/06/13/what-does-the-...
- woeirua 6y agoThat actually reinforces my point. For bubbles to occur, the delta between the price and the “rational” price must not be random. In bubbles prices exhibit strong temporal autocorrelation.
- MiroF 6y agoAssuming bubbles are real, which is somewhat unprovable. There are careful ways to falsify different formulations of the EMH. "Bubbles" is not one.