tag:blogger.com,1999:blog-1684157780354336888.post3520461210302066362..comments2024-03-18T10:13:48.207+01:00Comments on Physics Perspective: What moves the markets? Part IMark Buchananhttp://www.blogger.com/profile/11288455251267863265noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-1684157780354336888.post-76191490393925129852011-10-10T23:35:36.272+02:002011-10-10T23:35:36.272+02:00Isn't EMH is an assumption implemented for the...Isn't EMH is an assumption implemented for the sake of simplifying theories? It also contains the assumption that everyone has the same investment horizon (I think usually assumed to be 1-day!).<br /><br />Reading some of the Manias and Panics type of books (juxtaposing with my school's legendary index investing philosophy) I have often run across the thought that the valuation assessment is only from those trading, and not really everybody's. Therefore, isn't it subject to some bias by short-termers, who are more likely to jump in and out and be more reactive to everything than maybe a "normal" person would? <br /><br />So two folks get together today and decide GE is worth 20 x earnings, and tomorrow two separate folks decide it is only 10 x earnings, neither really makes a difference to someone who will not be selling it for 30 years.David Waltzhttps://www.blogger.com/profile/03415644204743030961noreply@blogger.comtag:blogger.com,1999:blog-1684157780354336888.post-24232522009711301612011-10-08T07:30:09.475+02:002011-10-08T07:30:09.475+02:00However, outside a crude characterisation, surely ...However, outside a crude characterisation, surely the EMH implies that prices reflect some average interpretation of the information available. Therefore, this interpretation can change even without any apparent news. As such, it may be perfectly possible for market to react before the outbreak of the Korean War if it is believed to be certain to happen tomorrow. <br /><br />In any case, I would not look at this as a binary. We know that markets cannot be efficient (as Grossman and Stiglitz showed) but there is a spectrum of relative efficiency in incorporating information. All those internal dynamics that you will speak about next interfere to a greater or lesser extent.Rob Haywardhttps://www.blogger.com/profile/07408506131607521085noreply@blogger.com