Xyrus

Will the Efficient Markets Hypothesis Survive This Crisis?

I don't think there's an either or. I think it is spectrum ranging from a completely inefficient market to an efficient market.

An efficient market would essentially look like brownian motion. In a perfectly efficient market, timing would be nothing but a matter of luck. There would be no way to beat the market.

However, that is not the market we have. The question isn't whether the markets are inefficient or not. The question is are the inefficiencies prominent enough for one to be able to take advantage of them.

Most of the inefficiencies in the market are short duration and/or small discrepancies. Only well connected or deep pocketed investors would be able to play these well. But more importantly, a lot of them are random as well.

So another question is, if a market has inefficiencies that a short, small, and/or random, at what point does it become indistinguishable from an efficient market? In other words, can there exist a market that has inefficiencies that you can't time?

It's my opinion that we do have a mostly efficient market for MOST investors, i.e. the inefficiencies are either too small, too short, too random, or some combination of the three that really only the big players can truly take advantage of them.

~X~