maratikus Wrote: ------------------------------------------------------- > MattLikesAnalysis Wrote: > > not entirely. inefficient markets as defined by > > the EMH leads a misallocation of capital which > > leads to market failure which is results in > > economic inefficiency. > > Do you mind elaborating on that? Let’s start with > the first statement. > > 1) inefficient markets as defined by EMH means > that it’s possible to consistently outperform > market. How does that lead to misallocation of > capital? the fact that securities are priced “unfairly”, and thus can be purchased/sold to achieve above average returns is the very definition of a misallocation. buying internet stocks that lack a clear plan to become profitable is a misallocation of capital. because there cannot be a “perfectly efficient market”, we can never acheive an optimal allocation of capital, a concept which IS acheivable because the amount and direction of capital is within our control.
higgmond Wrote: ------------------------------------------------------- > MattLikesAnalysis Wrote: > -------------------------------------------------- > ----- > > > > not entirely. inefficient markets as defined by > > the EMH leads a misallocation of capital which > > leads to market failure which is results in > > economic inefficiency. > > The concept of a misallocation of capital suggests > to me that there has to be a correct allocation of > capital. Who or what determines the correct > allocation of capital? Is there even such a > thing? perfect allocation would suggest that we have no depressions and virtually no change in economic state - a scenario which is unacheivable while humans have free will. efficient is unachievable when humans have free will. you cannot predict behaviour unless you control that behaviour.
Matt, I’m not making a judgement about validity of your statements but I don’t think your application of economic theory is very relevant. The very direct question was whether financial markets consistently provide opportunities to make abnormal returns. My opinion is that opportunities do exist but they are very difficult to find and they typically disappear overtime. My opinion is based on my own experience of trading and statistical analysis of markets as well as my experience in allocating money to traders. There are successful traders out there but they constantly have to look for new opportunities and there is no guarantee that they will continue making money. Do you believe that one can consistently make abnormal returns?
maratikus Wrote: ------------------------------------------------------- > Matt, I’m not making a judgement about validity of > your statements but I don’t think your application > of economic theory is very relevant. The very > direct question was whether financial markets > consistently provide opportunities to make > abnormal returns. My opinion is that > opportunities do exist but they are very difficult > to find and they typically disappear overtime. My > opinion is based on my own experience of trading > and statistical analysis of markets as well as my > experience in allocating money to traders. There > are successful traders out there but they > constantly have to look for new opportunities and > there is no guarantee that they will continue > making money. > > Do you believe that one can consistently make > abnormal returns? it is possible yes. observation is what creates the image of “efficiency” and forces a trader to think of something else. is a system really efficient if it removes some inefficiencies but at the same time creates others? you can consistently make abnormal returns if you can find the inefficiencies and stop trading the inefficiencies once they are no longer present, yet move onto other, newer inefficiencies. the fact that you say inefficiencies exist proves that the market is ultimately inefficient and based on my model of “the perpetual advancement of human kind and its relation to financial markets”, it is impossible for the market to be efficient based on perpetual embetterment. as for day-trading and the RWH, its something I will look further into and build a better opinion on whether you can beat the market consistently b/c I am unsure. b/c i believe in the RWH, I don’t think you can beat the market consistently, even though I was previously a successful scalper in F shares for a portion of my career, but i’m sure that inefficiency will eventually disappear. I don’t think that the EMH is meant to determine whether an individual can beat the market throughout the day, but in a longer time frame.
bump. i found it funny that this article arose a day after discussions ended at AF… http://online.wsj.com/article/SB10001424052748704324304575306442966044342.html?mod=WSJ_hpp_sections_careerjournal