Talk:Efficient-market hypothesis

message: Some observations on the definition: I would say that informational efficiency only makes sence as an equilibrium concept, i.e. characterising prices (and possibly allocations). This would imply that we are should not talk abour efficient markets, but of informational efficient prices (and possibly allocations). A definition would be something like: A set of prices is informational efficient with regards to a certain set of information if it would constitute an equilibrium even when that set of information was made available to all agents.
I would think that we would then not need a definition of informational efficient markets. But if we were to have such a definition it could be something like: A certain organisation of markets is informational efficient with regards to a certain set of information if all possible equilibria in that organisation of markets (for all combinations of agent characteristics, i.e. preferences, endowments, etc) would be informational efficient in the above sence.
--Olejasz 20:40, 23 November 2005 (UTC)
thread_title: Informational efficiency 

message: The Efficient market hypothesis (and it has always been just a hypothesis) is highly controversial, especially after the stockmarket runup in the late 1990s. There is a significant amount of research that shows that markets vary in their efficiency, and that this depends on market structure and organization. Grossman and Stiglitz in their landmark academic paper "The Impossibility of Informationally Efficient Capital Markets" show that liquidity would be zero in efficient markets (Stiglitz is a Nobel prize winner, so is not easily discounted). Successful investors like Warren Buffet catagorically reject technical analysis in favor of fundamental analysis. Though there may still be supporters of the efficient market hypothesis, I would suggest that this hypothesis can no longer be considered mainstream. (Chris Westland, Nov. 2005)
EMH has great validity in weak and semi-strong forms, but is limited by two false assumptions: 1) EMH assumes that new information is assimilated by the markets virtually instantaneously, and 2) it assumes absolute liquidity. 
When new information comes into play, there is a time lag while it is being processed. During this time delay, uncertainty about investment risk is relatively high. Overall investment risk includes all forms, including opportunity cost risk. Also, uncertainty about risk is itself risk. These facts mean that risk is volatile, often causing markets to behave in ways that are misconstrued as evidence of irrationality, by Keynesians and other EMH critics. Uncertainty itself seems to be misconstrued as evidence of irrationality, when it in fact should be viewed simply as an inherent inefficiency in the market. (An example of true "irrationality" is to say that because markets aren't perfectly efficient, government should intervene. Despite their imperfections, markets are far more efficient and rational than government at processing information and valuing assets.)
Liquidity issues can be triggered by any number of events, such as a natural disaster or a market slide brought on by new information and the time delay during which the market is assimilating some new information. In the case in which new information triggers it, it goes like this: 1) New information becomes available that will lower the equilibrium price. 2) As the price falls into the target price range of new buyers, these buyers must first liquidate other assets and free up the cash. 3) However, while assimilating the new information, prospective buyers become more "conservative" because of the increased risk associated with the information itself and with the uncertainty. Buyers lower their bid price and the assets become temporarily less liquid. 4) Some asset holders in need of liquidity are compelled to sell. This need for liquidity may even be exacerbated by the falling prices and the impaired liquidity, pushing some sellers into a "motivated" selling mode which can easily be misconstrued as "irrational". 5) Motivated selling coupled with reluctant buying cause a slide until the markets have assmimilated the information, prospective buyers have reset their bid price, AND these willing buyers have converted other assets to cash sufficient to buy the surplus from the motivated sellers. All of this creates the appearance of "irrationality". Kelly J Bailey (talk) 23:34, 3 October 2009 (UTC)
thread_title:  EMH is controversial

message: I have a theory that all form of EMH are valid but they are proportionally
relevant in regard to the totality of that information within the market, based on the weighted distribution among asset class for example Domestic Large-Cap Growth Style i.e. S&P 500 will demonstrate strong-form of EMH, but if I go into Emerging micro-cap value style - I would expect weak-form of EMH. 
I have been talking to my finance professors via email correspondence here is a Transcript After reading the transcript, I would like to hear any suggestion and comment that you might have. Paul.Paquette
-here's a comment: your link doesn't work and nobody cares about your theory.  —Preceding unsigned comment added by 98.185.232.114 (talk) 01:55, 10 December 2010 (UTC)
thread_title: My personal theory 

message: Sorry if I'm wrong, but I'm pretty sure that market participants have to be RATIONAL, profit maximisers (Fama 1965 Random Walks in Stock Market Prices p76 second paragraph) therefore bubbles are not an example of an efficient market! it's actually the exact opposit (see also the efficient market theory in wikipedia: http://en.wikipedia.org/wiki/Efficient_market_theory where it says the exact opposit as what's written here). 
203.217.87.5 00:07, 19 April 2006 (UTC)
thread_title:  Bubbles 

message: This is the text from Efficient Market Theory which obviously should be merged in this article.  Much of it is overlap, but please look to see where some of this can go!
Efficient market theory is a field of economics which seeks to explain the workings of capital markets such as the stock market.  According to University of Chicago economist Eugene Fama, the price of a stock reflects a balanced rational assessment of its true underlying value (i.e., rational expectations); its price will have fully and accurately discounted (taken account of) all available information (news).  
The theory assumes several things including (1) perfect information, (2) instantaneous receipt of news, and (3) a marketplace with many small participants (rather than one or more large ones with the power to influence prices). The theory also assumes that (4) news arises randomly in the future (otherwise the non-randomness would be analysed, forecast and incorporated within prices already). The theory predicts that the movements of stock prices will approximate stochastic processes, and that technical analysis and statistical forecasting will most likely be fruitless. 
:no, no, no, no, NO!  Strong form efficiency requires perfect information.  Other forms assume less perfect information --Thesurveyor 01:11, 3 July 2007 (UTC)
thread_title:  Efficient Market theory text (to be merged) 

message: I believe the key requirement for an efficient market is the absence of risk-free arbitrage opportunities. See Richard A. Brearley, Stewart C. Myers, Principles of Corporate Finance. RDSeabrook 19:12, 19 June 2006 (UTC)
thread_title: Absence of risk-free arbitrage opportunities

message: A much adored theory in the 50's, the Efficient Market Theory (EMT), has been conclusively proved never to have existed by Profs. Andrew Lo (MIT) and Craig MacKinlay in "A Non-Random Walk Down Wall St."  Their proof, currently available, published circa 1988, took about two years for academics to finally accept.  I feel the EMT theory should not be promulgated on your site, except as a dinosaur.  The Random Walk we will deal with next.
John McGinley,CMT, Past Director of the Market Market Technicans Assn.
I have met with and discussed this with Andrew at great length.  A shame it is not as well known as the proven fact that is.  EFM does not exist, and never has.  
Your references to Malkin's book are surpflulous and irrelevant.  The entire book, given the recent reseach, is not accurate, attestable, credible.  Knowing what we know now, it never should have been printed.
I hope this will be published in place of the innacurate info.
John McGinley, CMT, past board member Market Techicians Assn.
:a rejoinder -- how very intriguing.  Lo and McKinley's work is, indeed, well regarded in academic circles.  However, to use it as a total refutation of the EMH is... well... let's be kind and say "shortsighted".  Even Fama has of late recognized certain shortcomings in the EMH.  Nonetheless, we teach it because it helps us understand how the market works.  No one hypothesis captures the entire market, but the EMH has certainly withstood the test of time.  As an example, Sharpe's CAPM was "refuted" by the Roll Critique.  Nonetheless, we still use the CAPM, we still teach it in nearly every Finance or Investments text, and the majority of investors still use CAPM or some variant to determine required rates of return.  It's a very useful model, even if the theoretical underpinnings aren't as solid as once thought to be. --Thesurveyor 01:10, 3 July 2007 (UTC)
thread_title:  a comment by someone named John McGinley 

message: For this article, we need to draw a distinction between rationality and rational expectations. It correctly says people do not need to be rational (thinking based on reason, not emotion or habit, which leads to action that achieves goals) for the EMH to work. However, they do need rational expectations (updates their predictions with new information and are not systematically wrong). I will make these changes now. --David Youngberg 23:38, 12 August 2006 (UTC)
replies: text: My internet clunked out right after I saved the above message, denying me from editing the page. It just came back and I changed the page as I said but I forgot to sign in again when I did. The edits by 68.100.77.213  are me. David Youngberg 03:38, 13 August 2006 (UTC)
thread_title:  Rational and Rational Expectations 

message: By saying that all that is needed for weak-form EMH to hold is that "investors' reactions be random and follow a normal distribution pattern" are we saying that impulses to the system are stochastic and the overall response function is ergodic (or weak-sense stationary, at least)? If so, the mathematical basis of this stuff could probably be enhanced. Just a thought. —The preceding unsigned comment was added by 200.122.159.125 (talk) 03:06, 28 December 2006 (UTC)
thread_title:  A more rigorous definition 

message: A few random thoughts....
Gene's dissertation wasn't on the EMH, it was on the random walk theory.  Gene didn't publish on the EMH until the May, 1970 issue of the Journal of Finance, although he had discussed some of the issues in an earlier (1968) IER paper.  
The EMH does not... asserts that financial markets are "informationally efficient", or that prices on traded assets, e.g., stocks, bonds, or property, already reflect all known information and therefore are unbiased.  Rather, as the article goes on to make clear, EMH puts forth several different sets of conditions, "strong form", "semi-strong-form", and "weak form" efficiency.  The extent to which a pricing market follows one of these forms, (or none of them, for that matter) one can use prices to infer information.  --Thesurveyor 01:03, 3 July 2007 (UTC)
thread_title:  A Random Walk Thru This Article 

message: I think that the view of Mandelbrot that financial time series exhibit a multifractal pattern should be incorporated into the article. See this article: http://www.sciam.com/article.cfm?id=multifractals-explain-wall-street.
Another view on the mathematical pattern of randomness is that of Nassim Taleb. See this article: http://www.edge.org/3rd_culture/taleb04/taleb_indexx.html  —Preceding unsigned comment added by Whisky brewer (talk • contribs) 13:15, 31 December 2008 (UTC)
thread_title:  Fractals 

message: It is clear that the first sentence of the second paragraph is incoherent - It appears like part of the sentence got deleted somewhere along the line, but I can't piece it together. Perhaps someone could fix this. Nwlaw63 (talk) 19:54, 8 January 2009 (UTC)
thread_title:  Criticism and behavorial finance 

message: I really can only come at this from an approach as something of a mathematician but citing five investors who allegedly beat the market on a long-term basis isn't a very strong criticism.  First of all the terms "beat" and "long-term" are pretty poorly defined.  Second I would expect that any actual mathematical expression of probability (except perhaps where some variable is unbounded) would show that people consistently outperforming the market are simply unlikely not impossible.
Some of the psychological research is interesting but it somewhat strikes me as "criticism du jour" in that, again "short term" and "long term" aren't well defined and that suppose that attempting to take advantage of certain cognitive biases does allow you to make some money but it seems to leave out the possibility that a significant percentage of people could attempt this and negate its effect.
Similar things about bubbles.  Again I would expect these to be "rare" not "impossible".
:While the section itself needs work, there have been too many papers to mention that prove that EMH belongs in the same place as Flat Earth and the sun orbits the earth. Yes, the argument that a few people beat the indices is silly, as the law of large numbers of course predicts that, but there is no doubt among people who are willing to think on their own, rather than listen to dogma, that EMH is dead. Sposer (talk) 14:53, 27 January 2009 (UTC)
replies: text: I'm not discounting the possibility that EMH has been falsified (Although I haven't done enough reading to find a formulation that is actually experimentally falsifiable let alone experimental evidence to that effect) if the argument that a few people beat the indices is bad then it is just as bad to keep those in the article as it is to keep the article neutral about EMH if it has been proven false.  Considering that someone like yourself who is critical of the EMH finds said arguments as ludicrous as I do makes a good case to remove them.  Even if not everyone (here) can agree on the state of the EMH.  Also in the interest of Wikipedia being a high-quality source of information.  I think it's a good idea to keep popular fallacies out.  For example this kind of poor argument shows up online and in that new book by Cooper 'Origin of Financial Crises'. If there are really that many papers disproving the EMH then we are really doing people a disservice by not mentioning them and pulling relevant information out of them and into the article.  —Preceding unsigned comment added by 205.211.168.53 (talk) 22:17, 27 January 2009 (UTC)
replies: text: I've removed the silly paragraph identifying people that have beaten the market. Will look at adding other academic papers later. Sposer (talk) 22:27, 27 January 2009 (UTC)
thread_title:  Criticism section needs better arguments 

message: I am unable to locate the Dreman paper referred to in the sentence, "According to Dreman, in a 1992 paper, low P/E stocks have greater returns. In this paper he also refuted the assertion by Ray Ball that these higher returns could be attributed to higher beta,[17] whose research had been accepted by efficient market theorists as explaining the anomaly[18]:151"
Can anyone?
Normxxx (talk) 02:00, 26 February 2009 (UTC)
thread_title:  Unable to locate reference 

message: This section suffers from both awkward writing and a lot of unsourced opinions. I've tried to clean it up a little bit on both counts. Nwlaw63 (talk) 22:42, 8 May 2009 (UTC)
replies: text: I'm revisiting the awkward writing and unsourced opinions in this section, if no one objects. Some serious clippers need to be taken to this article, starting here.Nwlaw63 (talk) 05:36, 15 January 2010 (UTC)
replies: text: All right, I'm taking the axe here. I'm starting with moving or deleting parts of this section that have absolutely nothing to do with the theory's popular reception - in other words, most of the section. Chime in if you have suggestions or disagree, of course, but I think it's clear that 99% of this section (and parts of other sections) are not written the way an encyclopedia article should be written - in addition to the off-topic inclusions, there are unsourced opinions and references to people like Jim Kramer or Peter Lynch that aren't really related to the Efficient Market Hypothesis. Nwlaw63 (talk) 20:30, 28 January 2010 (UTC)
thread_title:  Popular Reception 

message: Although some improvements have been made, the article still seems to suffer from some awkward writing, and an awkward order of the sections. In the historical section, Firth's research is discussed in terms of being semi-strong-form efficient before that term is explained in the theoretical section below. Perhaps some shuffling of the sections is in order. And that awful sentence leading the last paragraph of the historical section has to go - I'll delete it soon if no one else objects. Nwlaw63 (talk) 17:53, 27 May 2009 (UTC)
thread_title:  Awkwardness of the Historical Section 

message: EMH has taken a severe beating from economists recently, with many of them blaming belief in efficient markets for the current financial crisis. You would never know this from reading the article - I have added a statement in the lede to reflect this. I have started to add corresponding material in the criticism section as well, which I will expand to appropriately reflect current sentiment. Nwlaw63 (talk) 17:39, 12 June 2009 (UTC)
replies: text: The fact that it has remained there has no bearing on whether or not it should remain there. I removed it with no discussion, because the opinion of a single author clearly does not belong in the lead of the article. I'm not saying that it shouldn't be in the article at all, but just not in the lead. The lead should provide a brief overview of the topic, and should be concise. This person's opinion is not critical to providing an understanding of the topic, and should be included later on in the article, if at all. -- Jrtayloriv (talk) 22:34, 9 April 2010 (UTC)
replies: text: I'm certainly not wedded to the specific quote removed, but criticism of the theory related to the financial crisis certainly isn't the opinion of one writer - with a little checking, you can find 20 citations for such a view, though the three currently there are probably enough of a representative sample. Many economists are rethinking the theory in light of recent events, and this well-sourced view, which is clearly not a minority view, certainly deserves a place in the lede. That being said, I am satisfied with its current mention at the end of the section. Nwlaw63 (talk) 19:07, 12 April 2010 (UTC)
thread_title:  Criticism and Recent Events 

message: Has anyone scrutinised the data given in the pretty scatter graph of the P/E ratio to see if it is influenced by survivorship bias? If you select a number of companies and go forward 10 or 20 years from year X, then many companies will fail, be taken over, or otherwise disapear. If however you select a group of companies and go back 10 or 20 years, then they will not have failed etc because they are the survivors - you are ignoring the failed companies. 78.146.3.82 (talk) 20:07, 3 September 2009 (UTC)
thread_title:  Survivorship bias 

message: IMO you can't just put a criticism by a "renown financial journalist", that's not credible enough for the main section. It must be removed or changed to a criticism by an academic, and with less agitated wording.
:Agree. This article seems backwards. The first section refers to a criticism by a journalist, the last section "Popular reception" refers to a criticism by an academic. We need to get the idea across that the EMH is a fundamental concept still used daily by finance academics and practictioners (almost none of whom believe all versions are 100% true). But we also need to report that there is academic criticism and enormous popular disbelief Expertofsome (talk) 23:19, 3 October 2009 (UTC)
thread_title:  Criticism in the beginning 

message: Once factored in, externalities render the hypothesis dead and done.
24.36.78.185 (talk) 03:06, 4 December 2009 (UTC)
thread_title:  Externalities 

message: This article is a WP:RS for this topic and should be integrated in the text:
"Whither the efficient-markets hypothesis?" Jul 16th 2009, from The Economist print edition MaxPont (talk) 23:53, 11 December 2009 (UTC)
thread_title: Excellent article from The Economist about the EMH

message: Much as I love Elliott Wave, and even wrote a book on it, I do not think it deserves a paragraph, or even mention, in the EMH article. Elliott Wave is a subset of Technical Analysis, and Behavioral Economics. The market psychology noted in the paragraph is equally relevant to the better known Dow Theory. Although I agree that EMH is 100% invalid, much of the article is already spent refuting it. Certainly, mention of work of Behavorial Economists and technical analysts in general makes sense, but a paragraph on a subset of these larger methods does not really make sense here. Sposer (talk) 18:05, 20 January 2010 (UTC)
thread_title: Elliott Wave mention

message: Aprock, in regards to your reorganization of this section , you're still engaging in WP:SYNTH. See the definition:Do not combine material from multiple sources to reach or imply a conclusion not explicitly stated by any of the sources. If one reliable source says A, and another reliable source says B, do not join A and B together to imply a conclusion C that is not mentioned by either of the sources. This would be a synthesis of published material to advance a new position, which is original research. Now, I'll admit that the last paper by Maymin is not original research, but that paper is currently unreliable. The first two need to be taken out for synthesis reasons, and the third needs to be taken out because it's unreliable. Let's leave this out while the academics put the polishing finishes on it. II | (t - c) 16:52, 15 March 2010 (UTC)
replies: text: I did no such thing.  If you think I did, please provide the specific quotes you think are original research or synthesis and I'll fix them. A.Prock (talk) 16:57, 15 March 2010 (UTC)
replies: text: The first part of your new section is synthesis:The problem of algorithmically constructing prices which reflect all available information has been studied extensively in the field of computer science. For example, the complexity of finding the optimal match in a pair betting market has been shown to be NP-hard.<ref>. Likewise, it can be proven that the weak form of the efficient market hypothesis is equivalent to the statement that P = NP So you're essentially tossing in unrelated facts, and then saying (based on your own understanding) that these are "likewise" to Maymin's results. This is clear original research. Maymin does not cite these sources. If Maymin did cite these sources, or you were to use only Maymin's sources, then this would reduce to just an unreliable source, and it would still need to be removed. II | (t - c) 17:05, 15 March 2010 (UTC)
replies: text: Could you clarify this.  Is it the word "Likewise" that is the problem?  The main sentence of the paragraph is that the problem is studied.  But I'll use a different word if that helps.  A.Prock (talk) 17:10, 15 March 2010 (UTC)
replies: text: Could you please read WP:SYNTH carefully and slowly? The current section says this:The problem of algorithmically constructing prices which reflect all available information has been studied extensively in the field of computer science[19][20]. For example, the complexity of finding the arbitrage opportunities in pair betting markets has been shown to be NP-hard. This section does not say anything about EMH because the sources do not, but it's still synthesis because it is implicitly saying that this is relevant to EMH, which the sources do not say. I'm taking it out. We have to wait until someone publishes the argument. While it seems clear to you, there are still plenty of people who believe in semi-strong EMH - including Nobel Laureates in Economics - so it's not as simple as 2 + 2 = 4. II | (t - c) 05:16, 26 March 2010 (UTC)
replies: text: I think you'll have to do a better job of describing how that is synth.  From the article: "The weak version of EMH supposes that prices ... reflect all past publicly available information."  Including a discussion of algorithmic research which describes how to construct prices that reflect all information is not synth.  I'll be reverting in a day or so unless you can be clearer about what exactly you think is synth here.  A.Prock (talk) 04:13, 28 March 2010 (UTC)
thread_title:  Synthesis 

message: "Defenders of the EMH caution that conflating market stability with the EMH is unwarranted; when publicly available information is unstable, the market can be just as unstable"
???  —Preceding unsigned comment added by Itzkin (talk • contribs) 13:00, 6 June 2010 (UTC)
thread_title:  what does "unstable information" mean? 

message: Although, IMO, believing in EMH is akin to believing in the tooth fairy, the example given does not in any way, shape or form, disprove EMH. Buffet's arguments are that the markets are not rational, if I am reading the quote correctly, but that is not enough. However, as the article states elsewhere: "Note that it is not required that the agents be rational. EMH allows that when faced with new information, some investors may overreact and some may underreact. All that is required by the EMH is that investors' reactions be random and follow a normal distribution pattern so that the net effect on market prices cannot be reliably exploited to make an abnormal profit, especially when considering transaction costs (including commissions and spreads)." Sposer (talk) 16:00, 9 June 2011 (UTC)
thread_title:  Recent edits attempting to add Buffet quote 

message: The meteorological analogy is a very bad one and just serves to confuse people who do not have a strong grasp of the markets.  Even if every single person in the world tomorrow says it will rain in London tomorrow, that has NO EFFECT on whether it will actually rain or not.  However, if every single person thinks Google is worth US$2, guess what happens to the price of the Google? It goes straight to US$2.  Regardless of the argument put forth in the following paragraph, about whether the market can be 'right', there is no denying the fact that the market can be influenced by individual's beliefs, while the weather most certainly cannot.  I don't see the benefit of this analogy at all and think it should be removed.]
-B  —Preceding unsigned comment added by 58.152.140.7 (talk) 13:39, 15 November 2008 (UTC)
thread_title: Terrible Analogy

message: King Brosby, I don't know if your change here  made the definition of EHM more accurate, but it sure made it more read "Some..." rather than the implied "All..."? Researchers and possibly investors set up the EMH in the first place. 92.23.38.244 (talk) 19:46, 21 June 2011 (UTC)
thread_title: Change to definition

message: This sentence: "The financial crisis has led Richard Posner, a prominent judge, University of Chicago law professor, and innovator in the field of Law and Economics, to back away from the hypothesis and express some degree of belief in Keynesian economics." should be changed or removed. Keynesian economics has very little to do with EMH, and is certainly is not some sort of competing theory, as this sentence implies.  — Preceding unsigned comment added by Kaweron (talk • contribs) 03:08, 2 July 2011 (UTC)
replies: text: The article states that the crisis led Posner to question both EMH and the Chicago School and move towards favoring Keynsian theory. Maybe the sentence could use some wordsmithing, but it is accurate in regards to the article. It does not say EMH and Keynes are the same. It just questions EMH and Supply Side economics. Sposer (talk) 19:26, 2 July 2011 (UTC)
thread_title: EMH and Keynes

message: I've removed User:BDS2006's addition of the following photograph, which was added with the claim that it illustrates the concept of of efficient-market hypothesis. As the image is unreferenced and the article doesn't discuss formula one, choice of gear or location, it's unclear how this is related to the subject at all. Can you provide a source discussing the relation of photographers in racing events and the EMH hypothesis? Diego (talk) 09:49, 16 December 2013 (UTC)
thread_title:  EMH and formula one 

message: The criticism section seems bloated and disorganized. There is lots of well-sourced EMH criticism out there, and I'm not saying we should remove it, but it currently reads like a long collection of random paragraphs strung together. I think sub-heads with greater focus would help, such as sub-heads on market bubbles, research, etc. Nwlaw63 (talk) 23:23, 3 December 2014 (UTC)
thread_title:  Cleaning up the criticism section 

message: I was not sure where in Wikipedia this ought to appear. So, EMH gets the honors. Other candidate pages might be Share price and Stock valuation. No doubt, there are other alternatives. This is in the Talk page for several reasons. From where I stand, this little quirk of accounting practices (that is, CM) is an important (overlooked by design as it allows machinations to continue) aspect of (and leads to) the current problems (chimera and more) that need attention (note: raising this viewpoint is not a "NOR" issue).
At every downturn, questions do arise about how (and why) markets fall so fast. It is not clear to many just how ephemeral is that value ball that rises as if on hot air (and which is touted, and yelled about, by so many taking heads with their pretty graphing during the business day). The following are two explanations that are noteworthy, albeit phrased for a common viewpoint: Marilyn's Cheshire Multiple (see FT Magazine June 4, 2009) and Investopedia's take (When Stock Prices Drop, Where's the Money?). As well, there is this summary page at the FEDaerated blog.jmswtlk (talk) 23:47, 16 February 2015 (UTC)
replies: text: El-Erian uses "illusion of liquidity" to indicate the same thing. Perhaps, "Cheshire multiple" ought to go on that page. jmswtlk (talk) 14:29, 18 February 2015 (UTC)
replies: text: Changed wording to this: The joint hypothesis problem says that it is never possible to test (sufficiently, to prove or disprove) market efficiency. ... Ought the joint hypothesis problem be the first section? If the jhp page were to be updated, would we need the section?  jmswtlk (talk) 03:19, 20 February 2015 (UTC)
thread_title:  Cheshire multiple 

message: This section (and it is the first of the sections?) says "it is never possible to disprove market efficiency" (what? it's an axiom? - so, take it or leave it?). I knew that Economics was miserable (dismally so) but not to the extent shown with that wording. BTW, see above section on the Cheshire multiple: how could efficiency be measured (let alone attained) with such a flaky accounting process? jmswtlk (talk) 02:34, 20 February 2015 (UTC)
replies: text: Changed wording to this: The joint hypothesis problem says that it is never possible to test (sufficiently, to prove or disprove) market efficiency. ... Ought the joint hypothesis problem be the first section? If the jhp page were to be updated, would we need the section?  jmswtlk (talk) 03:19, 20 February 2015 (UTC)
thread_title:  Joint hypothesis 

message: I returned to reread this article after being away from it for over a year, and it seems that the article lede is making the case that the EMH is generally held to be true - even the few words of criticism are mitigated in the article. Given that this isn't necessarily the reflection of most reliable secondary sources, particularly recent ones, it may be time to balance the lede in a way that's more reflective of what the full weight of sources is actually saying. Opinions welcome and wanted here before I do anything. Nwlaw63 (talk) 18:43, 28 August 2016 (UTC)
thread_title:  Article lede should more accurately reflect coverage in reliable secondary sources 

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thread_title:  External links modified 

message: There is a separate article on Economic efficiency. I propose to move the section with that subheading out of this article and into that one. RMGunton (talk) 17:09, 17 September 2018 (UTC)
thread_title:  Suggest moving section on Economic efficiency 

message: Would this article benefit from a careful discussion of the joint hypothesis problem? Why having a higher expected return than the S&P500 doesn't imply a failure of the EMH?
As Fama pointed out decades ago, any test of market efficiency is a joint test of market efficiency and an asset pricing model. One cannot directly test whether markets incorporate all available information into prices: you also need some model about what prices should be. For example, let's assume a strategy has an expected return of 5% but your asset pricing model says that based upon available information, the expected return should be 2%. If you know that difference is real, you don't know whether to conclude: (1) markets aren't incorporating all available information or (2) your asset pricing model is wrong.
I bring this up because it's so common to see people implicitly assume some rather fantastical asset pricing model (eg. that expected returns for every stock is the same), reject the joint hypothesis of market efficiency and their asset pricing model, then (incorrectly) conclude that markets must be inefficient. For example, if someone assumes that "no portfolio has a higher expected return than the S&P 500," they're assuming that every security in the S&P 500 has the same expected return, that no security has a higher expected return as compensation for additional risk.
Something else to do might be to discuss what the efficient market hypothesis does and does not directly imply?
Mgunn (talk) 16:43, 19 March 2019 (UTC)
thread_title:  Testing market efficiency and the joint hypothesis problem?

message: — Assignment last updated by SUpercool2154 (talk) 23:59, 18 November 2023 (UTC)
thread_title: Wiki Education assignment: Research Process and Methodology - FA23 - Sect 202 - Thu