People have said--I think I have said, though I can't find it--that the Efficient Capital Markets Hypothesis will survive because there is no good counter theory and you can't trump something with nothing.
I've just started Wall Street Revalued: Imperfect Markets and Inept Central Banks, by the estimable Andrew Smithers where he claims to do just that--no, to have done just that back in 2000. Smithers graciously credits Robert Shiller with achieving the same goal by a parallel route. I'll keep you posted.
I guess the main reason I still hew to ECMH is the counsel-of-prudence aspect. When I teach basic finance to law students, I take it that at least half my job is to convince them that they aren't smart enough to outthink the market--okay, that they may be smart enough, but they are unlikely to be well enough trained, and very unlikely to be willing to give it the sitzfleisch that the job requires. So I think I'll stick to that part of ECMH, even if Smithers shows me how he can knock it in the head.
3 comments:
If everyone was smart enough to "outthink the market" - or even if a few folk were smart enough the outthink the market most of the time - would there BE a market?
Have you taken a look at Lo's adaptive market hypothesis?
Re Chrismealy on adaptive markets: I probably don't know enough about Lo's work to justify any comment at all, but I tend to rank him among those people who do a good job of trying to move the ball down field in understanding how markets actually behave without deserving credit as a full blown positive theory.
Re outthinking the market--that sounds like it has to be true. But one of the embarrassments for ECMH is that there seem to be systematic and repetitive anomalies in the market that the market does not correct.
Re
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