I think there are two areas that need to be included in the discussion here.
1) EMH as a static equilibrium concept and as a dynamic equilibrating process. I don’t think EMH comes out too great in either setting but still do think that the hypothesis is largely true: information matters, is used and is largely reflected in the prices as it become more generally know (private information allows alpha but also has controls on its use and typically those with it cannot take full advantage due to resource limitations).
2) What do market prices really reflect? It is not really the enterprise value directly, though clearly that will be related, but more about the relative supply and demand for the shares at the margin. All sorts of think affect that marginal pricing—I have to sell something to do something else that is a better alternative so that sale is my opportunity cost—that has little to do with the underlying enterprise pricing question or the information related to that question.
private information allows alpha but also has controls on its use
Just want to make the minor point that what you might call logical information can effectively be private too. The logical consequences of public information are not immediately available to all market participants. Better analysis should also be able to convey alpha.
Though note that it may be difficult to tell whether you have better (or even different!) analysis than everyone else, since you don’t know what they’ve concluded. (See my other comment.)
Agree. I actually deleted an earlier version of the comment that offered some thoughts on the problem of information in the evaluation of EMH. But that quickly good too complicated for the little though I was ready to apply.
I think there are two areas that need to be included in the discussion here.
1) EMH as a static equilibrium concept and as a dynamic equilibrating process. I don’t think EMH comes out too great in either setting but still do think that the hypothesis is largely true: information matters, is used and is largely reflected in the prices as it become more generally know (private information allows alpha but also has controls on its use and typically those with it cannot take full advantage due to resource limitations).
2) What do market prices really reflect? It is not really the enterprise value directly, though clearly that will be related, but more about the relative supply and demand for the shares at the margin. All sorts of think affect that marginal pricing—I have to sell something to do something else that is a better alternative so that sale is my opportunity cost—that has little to do with the underlying enterprise pricing question or the information related to that question.
Just want to make the minor point that what you might call logical information can effectively be private too. The logical consequences of public information are not immediately available to all market participants. Better analysis should also be able to convey alpha.
Though note that it may be difficult to tell whether you have better (or even different!) analysis than everyone else, since you don’t know what they’ve concluded. (See my other comment.)
Agree. I actually deleted an earlier version of the comment that offered some thoughts on the problem of information in the evaluation of EMH. But that quickly good too complicated for the little though I was ready to apply.
Didn’t stop me ;-)