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Actually, prices change far less than you would expect and more slowly than they should if they were to reflect information. See: https://en.wikipedia.org/wiki/

Actually, prices change far less than you would expect and more slowly than they should if they were to reflect information. See: https://en.wikipedia.org/wiki/Nominal_rigidity https://en.wikipedia.org/wiki/Nominal_rigidity This isn't too much of a thing for stocks (most likely because they aren't production inputs), but that's a small part of price signals. In general, the most important prices do not adjust amazingly quickly, because our economy is far too slow and unwieldy and unable to cope with price uncertainty.

legitster 2y ago
Rigidity is usually applied to common markets which everyone agrees are pretty inefficient. Efficient markets hypothesis was written specifically with stock markets and exchanges in mind, and it's what the linked article mostly discussed.
- sudosysgen 2y ago
  Rigidity is not thought to be about attributes of the markets, it is a consequence of the productive process that belies them. That it only applies to inefficient markets is circular reasoning, if rigidity makes a market inefficent then surely it applies to inefficient markets. Stock markets are ultimately downstream of production, it is impossible to divorce the efficiency of commodity markets from the efficiency of capital markets. Rigidity is contagious. Firms with sticky prices are wildly considered to incur costs and more negative responses to various macroeconomic conditions, and those costs reduce the valuation of equities, so the inefficiency in production is reflected in equity prices. If prices were not rigid we would see different equity prices. You can try to fix this by looking at every transaction level in isolation and baking in the bias of the next level, but then you're no longer making a statement about the economy and the efficiency of price signals. Instead, you're making an essentially unverifiable statement about the profitability of a limited set of strategies restricted to long/short positions in equities only (which on average is forced to be exactly equal to the market price since every transaction needs a counterparty): Even if there is a hidden variable that makes some strategies better, it will most likely be impossible to pick out which strategies are better because of luck and which are better for a reason if you are modelling the null hypothesis as some sort of random walk with long tail event, the hidden variable will most likely be lost in the noise. You can also try testing it by looking at prices directly, in which case Roll's critique holds. In short, as a broader theory to apply to economic relations and economic calculation, the EMH doesn't hold. As a narrow theory of the profitability of certain trading strategies, it's unverifiable.

legitster 2y ago

Rigidity is usually applied to common markets which everyone agrees are pretty inefficient. Efficient markets hypothesis was written specifically with stock markets and exchanges in mind, and it's what the linked article mostly discussed.

sudosysgen 2y ago
Rigidity is not thought to be about attributes of the markets, it is a consequence of the productive process that belies them. That it only applies to inefficient markets is circular reasoning, if rigidity makes a market inefficent then surely it applies to inefficient markets. Stock markets are ultimately downstream of production, it is impossible to divorce the efficiency of commodity markets from the efficiency of capital markets. Rigidity is contagious. Firms with sticky prices are wildly considered to incur costs and more negative responses to various macroeconomic conditions, and those costs reduce the valuation of equities, so the inefficiency in production is reflected in equity prices. If prices were not rigid we would see different equity prices. You can try to fix this by looking at every transaction level in isolation and baking in the bias of the next level, but then you're no longer making a statement about the economy and the efficiency of price signals. Instead, you're making an essentially unverifiable statement about the profitability of a limited set of strategies restricted to long/short positions in equities only (which on average is forced to be exactly equal to the market price since every transaction needs a counterparty): Even if there is a hidden variable that makes some strategies better, it will most likely be impossible to pick out which strategies are better because of luck and which are better for a reason if you are modelling the null hypothesis as some sort of random walk with long tail event, the hidden variable will most likely be lost in the noise. You can also try testing it by looking at prices directly, in which case Roll's critique holds. In short, as a broader theory to apply to economic relations and economic calculation, the EMH doesn't hold. As a narrow theory of the profitability of certain trading strategies, it's unverifiable.