There are plenty of plausible arguments against various formulations of it. However your statement is somewhat problematic: if someone is in finance, they would have to literally believe that their own actions are pointless in order to conclude that “EMH is the absolute truth”.
Few people have the lack of ego to properly consider that hypothesis.
Another comment: does EMH guarantee market correctness now? Time matters. If you think about it—in fact this takes the shape of a proof:
actors in the market with a strategy that is more correct will over time accumulate more assets versus their competitors. Therefore, more of the assets used to buy the security will belong to “well informed, rational actors” and the price will converge over time to the one that “well informed, rational actors” collectively agree on. If this were untrue, it would require over an infinite timescale for irrational, poorly informed actors to statistically win and this is against the definition of (rational, information)
It’s a convergence. But this doesn’t mean it wouldn’t take 500 years to eventually stabilize, or that like all control systems, it won’t have random fluctuations and overcorrections. Example : classic PID control, where the system does converge on the target value, with an expected average value of the target even if it’s over/under damped.
Put this way it’s hard to understand a world where EMH could be wrong eternally. With that said, in near term views, traders can act to converge the market towards efficient prices, making a profit in the doing. It’s just a finite gradient to exploit—every new trader that is using the best available strategy is lowering the profits that can be achieved by the other traders using a similar strategy.
I studied and worked in finance and I don’t think I ever met someone who truly believed that the EMH was the absolute truth.
There are plenty of plausible arguments against various formulations of it. However your statement is somewhat problematic: if someone is in finance, they would have to literally believe that their own actions are pointless in order to conclude that “EMH is the absolute truth”.
Few people have the lack of ego to properly consider that hypothesis.
Not necessarily. You can have people believe that EMH works in US equities or US Treasuries but not say, US corps.
But most people in finance that I encountered throughout my career believed that EMH did not worked in any market.
Another comment: does EMH guarantee market correctness now? Time matters. If you think about it—in fact this takes the shape of a proof:
actors in the market with a strategy that is more correct will over time accumulate more assets versus their competitors. Therefore, more of the assets used to buy the security will belong to “well informed, rational actors” and the price will converge over time to the one that “well informed, rational actors” collectively agree on. If this were untrue, it would require over an infinite timescale for irrational, poorly informed actors to statistically win and this is against the definition of (rational, information)
It’s a convergence. But this doesn’t mean it wouldn’t take 500 years to eventually stabilize, or that like all control systems, it won’t have random fluctuations and overcorrections. Example : classic PID control, where the system does converge on the target value, with an expected average value of the target even if it’s over/under damped.
Put this way it’s hard to understand a world where EMH could be wrong eternally. With that said, in near term views, traders can act to converge the market towards efficient prices, making a profit in the doing. It’s just a finite gradient to exploit—every new trader that is using the best available strategy is lowering the profits that can be achieved by the other traders using a similar strategy.