Second, and it relates to the first, one of the other things (different time) that was pointed out was “market” is a problematic terms. Each asset that is traded has a market and that is not the same as “the market”. I think this tends to be something of a problem area for people when the issue of EMH is in question.
Yes! This is another really great point. I think Noah Smith described it by saying something like, ‘there is no EMH—there are an infinite number of EMHs all happening at the same time’. Which is another reason the theory is vague and unfalsifiable.
I find it helpful to think about each market in the narrowest possible terms. For example, the market for AAPL stock is likely to be less efficient than the S&P 500 market as a whole, although presumably not by much. The market for a thinly-traded stock languishing on the secondary board of the Tanzanian stock exchange is likely to be much less efficient than that. The market for a private company with no disclosure obligations is much less efficient again. By the time you get down to ‘the market for the time and labour of this one guy called Richard’, there are truckloads of inefficiencies and EMH doesn’t really apply.
Yes! This is another really great point. I think Noah Smith described it by saying something like, ‘there is no EMH—there are an infinite number of EMHs all happening at the same time’. Which is another reason the theory is vague and unfalsifiable.
I find it helpful to think about each market in the narrowest possible terms. For example, the market for AAPL stock is likely to be less efficient than the S&P 500 market as a whole, although presumably not by much. The market for a thinly-traded stock languishing on the secondary board of the Tanzanian stock exchange is likely to be much less efficient than that. The market for a private company with no disclosure obligations is much less efficient again. By the time you get down to ‘the market for the time and labour of this one guy called Richard’, there are truckloads of inefficiencies and EMH doesn’t really apply.