3 ms·
You don't need scientific proof or reading material - the theory you are trying to prove is wrong. Just look at the number of billionaires who have decades lon
by brc 12y ago
You don't need scientific proof or reading material - the theory you are trying to prove is wrong.
Just look at the number of billionaires who have decades long 20,30,50% average returns - not possible by chance.
The efficient market hypothesis believers say that these people were lucky.
People who say that don't understand probability.
The probability of winning big one year is probably not that rare - lotto win sort of numbers, and given the number of players and the number of iterations - easily explained away.
However, the existence of scores of individuals who have been able to profit for long periods of time completely destroys the efficient market hypothesis, because the hypothesis says they can't exist.
Take one single example ; Richard Dennis. He started off with $1500 and ran it up into hundreds of millions. He then taught a group of people who had zero trading experience his system and then they went off and made hundreds of millions (some are still going).
http://en.wikipedia.org/wiki/Richard_Dennis http://en.wikipedia.org/wiki/Richard_Dennis
That is completely non-random outcomes. The efficient market hypothesis is something that academics wet themselves over while other people laugh at their theories and make millions.
Essentially, for 'systematically beating index performance on the market using publicly available data is not possible' to be true, then the scores of people who have done just that, over decades, cannot exist. And yet they exist.
- kasey_junk 12y agoRichard Dennis is a weird example to use, given that he ended his career losing tons of other peoples money. If anything he is a perfect example of luck...
- brc 12y agoWell, no. The fact that Richard Dennis chose to stop taking customer money after a bad loss in the 87 crash proves nothing. The EMT/EMH states that because all the information is in the he public domain, returns above market over time are not possible. Anyone with the slightest interest in human nature understands that two different people with the same information can come to two entirely separate conclusions. Any glance at election results will tell you that. Richard Dennis developed a system that produced outsized returns over a long period of time using public information. He then taught this system to others, who then used it to also make outsized returns using public information. Thus disproving the hypothesis. The fact that he gave back a small portion of his total returns in a particular market event doesn't change the basic facts. Even if his strategy no longer works, the fact that it did work for a long period of time disproves the theory. He was able to use public information to decide to abandon the strategy when it no longer worked.
- kasey_junk 12y agoI certainly am not the person to backup the EMH (my complaints about it are more about the lack of provability/usefulness) but you are completely misstating some very central points about the EMH and more specifically about Richard Dennis. 1 - no version, even the most strict, of the EMH claims that returns above market over time are not possible. The claims are about the prices of assets and their relation to information. So even a very strict interpretation of the EMH wouldn't say you can't make above market returns over time, only that you can't do it because you know something no one else does. Random movements or other non-knowable events are not part of the EMH. 2 - all EMH versions talk about risk adjusted returns. So if you place an incredibly risky bet, that pays off, that does not violate any form of the EMH. The Dennis system was particularly risky, especially in comparison to other market participants like him. 3 - Dennis' system did not perform well over a long period. The system does not perform well past 1986 and was only first codified in either 1983 or 84. Dennis performed better over that time, but his system did not. This is evidence that he was lucky, not beating an efficient market. Even if we take the most charitable view of Dennis' system, not that it was luck, rather it was some new found previously unknown information, that backs up less strict forms of the efficient market hypothesis. The market responded to the actors in it finding an inefficiency by making that efficient to the point of the opportunity disappearing.