The efficient market hypothesis is really used as a stolen concept. The original idea is that the market price at a point in time represents all participants’ best guess as a factor of their buying and selling actions. The theory is that since conditions are always changing, prices change accordingly and the price is the price — it can’t be wrong. Just like a tree is a tree and A is A, the price of a thing at a certain time, “price now” is a fact. It is not right or wrong it simply is.
However, people use the efficient market theory as predictive of the future. Since no man is infallible, no group of men acting singly, cooperatively, collectively or as government is infallible. Large market movements are indicative of new information or changes in circumstances (interpreted correctly or incorrectly). Regulations interfering with market actions enshrine outdated information. If “price now” cannot change because of government regulation, then market freedom is stripped.
It depends on the definition of efficiency. And wider, markets integrate the choices of participants. That’s efficiency. Avoid a non-market standard of efficiency, ie, economists or bureaucrats who claim economic knowledge beyond the market.
2 Comments to “Yaron Answers: Do You Agree With The Efficient Market Hypothesis?”
The efficient market hypothesis is really used as a stolen concept. The original idea is that the market price at a point in time represents all participants’ best guess as a factor of their buying and selling actions. The theory is that since conditions are always changing, prices change accordingly and the price is the price — it can’t be wrong. Just like a tree is a tree and A is A, the price of a thing at a certain time, “price now” is a fact. It is not right or wrong it simply is.
However, people use the efficient market theory as predictive of the future. Since no man is infallible, no group of men acting singly, cooperatively, collectively or as government is infallible. Large market movements are indicative of new information or changes in circumstances (interpreted correctly or incorrectly). Regulations interfering with market actions enshrine outdated information. If “price now” cannot change because of government regulation, then market freedom is stripped.
It depends on the definition of efficiency. And wider, markets integrate the choices of participants. That’s efficiency. Avoid a non-market standard of efficiency, ie, economists or bureaucrats who claim economic knowledge beyond the market.