Efficient market theory would, if accurate, see all news reflected in the price within a very short, or almost immediate timeframe.
If news cannot be predicted, then, by definition, price cannot be predicted.
Thus, traders, and investors, who subscribe to the theory would not waste time in analysis of any description.
But, if relatively few are now engaged in analysis, then the market will not respond as quickly to new developments. Thus, analysis can provide an edge.
As an example, a rule from logic.
Sentences of the form "H implies I" are equivelent to "not I implies H".
Heavy rain implies that the ground will be wet.
Conversely,
"Dry ground implies the absence of heavy rain"
Using this rule of logic, we can restate;
"Overwhelming belief in EMH implies it's falsity.
Sluggish market theory, the belief that markets respond slowly to new developments, and that analysis is profitable, will eventually lead to efficient markets, as the number of analytical methodologies increase to take advantage of the anomalies, ultimately removing price inefficiency, with a return to EMH.
This would indeed seem to be the case, where, markets fluctuate between emotional and rational extremes, with periods of consolidation, or directionless price movement within a defined range.
Ants.
Are people rational, or emotional, or a combination?
And how does this effect stock buying, selling decisions?
An experiment was conducted utilising ants, and 2 piles of ant food. The food was replenished on a daily basis. Where would the ants go after their first visit?
Entymologists predicted a return to their first pile of food.
This didn't happen. The ants fluctuated wildly between the two.
It would seem they were ( a ) influenced by other ants, ( b ) just randomly changed their minds
What has this to do with the market?
(a ) buy, .........( b ) sell........................
Why would you pick one over the other, on a daily or weekly, or hourly basis?
Why would you change?
What factors would have to change and influence you to totally reverse your previous analysis?
cheers d998
If news cannot be predicted, then, by definition, price cannot be predicted.
Thus, traders, and investors, who subscribe to the theory would not waste time in analysis of any description.
But, if relatively few are now engaged in analysis, then the market will not respond as quickly to new developments. Thus, analysis can provide an edge.
As an example, a rule from logic.
Sentences of the form "H implies I" are equivelent to "not I implies H".
Heavy rain implies that the ground will be wet.
Conversely,
"Dry ground implies the absence of heavy rain"
Using this rule of logic, we can restate;
"Overwhelming belief in EMH implies it's falsity.
Sluggish market theory, the belief that markets respond slowly to new developments, and that analysis is profitable, will eventually lead to efficient markets, as the number of analytical methodologies increase to take advantage of the anomalies, ultimately removing price inefficiency, with a return to EMH.
This would indeed seem to be the case, where, markets fluctuate between emotional and rational extremes, with periods of consolidation, or directionless price movement within a defined range.
Ants.
Are people rational, or emotional, or a combination?
And how does this effect stock buying, selling decisions?
An experiment was conducted utilising ants, and 2 piles of ant food. The food was replenished on a daily basis. Where would the ants go after their first visit?
Entymologists predicted a return to their first pile of food.
This didn't happen. The ants fluctuated wildly between the two.
It would seem they were ( a ) influenced by other ants, ( b ) just randomly changed their minds
What has this to do with the market?
(a ) buy, .........( b ) sell........................
Why would you pick one over the other, on a daily or weekly, or hourly basis?
Why would you change?
What factors would have to change and influence you to totally reverse your previous analysis?
cheers d998
