This is the talk page for discussing improvements to the Efficient-market hypothesis article. This is not a forum for general discussion of the article's subject. |
Article policies
|
Find sources: Google (books · news · scholar · free images · WP refs) · FENS · JSTOR · TWL |
![]() | This article is rated C-class on Wikipedia's content assessment scale. It is of interest to the following WikiProjects: | ||||||||||||||||||||
|
This article was the subject of a Wiki Education Foundation-supported course assignment, between 7 July 2020 and 14 August 2020. Further details are available on the course page. Student editor(s): Aaronlai23.
Above undated message substituted from Template:Dashboard.wikiedu.org assignment by PrimeBOT (talk) 20:17, 16 January 2022 (UTC)
confusing. I'd like to fix it but I'm not sure how - can you try? Otherwise I'll do my best. Axlrosen 21:16, 3 Oct 2003 (UTC)
Other things that need fixing:
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)
That there is not a basic explanation of this in this wikipedia post is surprising. Someone below mentions weak form and semi-strong has "great validity" yet this is not explained in the entry. For students wanting to understand quickly, this entry is missing an essential ingredient.
There is insufficient information about the "fathers" like Fama, and the events leading up to where we are today.
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)97.116.24.66 (talk) 23:32, 3 October 2009 (UTC)
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)
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)Emmanuel
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.
This efficient process of price determination can be contrasted with an inefficient market in which, according to the theory, the pre-conditions for efficient pricing (perfect information, many small market participants) have not been met and prices may be determined by factors such as insider trading, institutional buying power, misinformation, panic and stock market bubbles and other collective cognitive or emotional behavioral biases.
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)
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.
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)
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).
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)
Why is it the case that this isn't asserted to be false, and listed as pseudoscience? Although economics is hardly scientific, a scientific hypothesis has to be falsifiable. Given that EMH has been falsified over and over and over and over again, then it is a falsified hypothesis. So, it is false. To have it as a criterion for scientific consideration means that it can be useful in understanding how other explanations may diverge from a falsified hypothesis, i.e. they may explain stochastic processes where EMH fails to explain observed data. To propound EMH as a valid hypothesis, after falsification, is only allowable in pseudoscience. —Preceding unsigned comment added by 71.132.135.22 (talk) 22:39, 18 February 2008 (UTC)
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)
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)
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".
I'm reading the 'non-random walk' papers now by Lo and the "Macs". Nothing mind blowing so far. I'm kind of excited to see what the arguments are. At the back of my mind I'm still bothered by the poor definition of terms in the EMH like "long-term" which make it hard to falsify. So far virtually all criticism I've read so far seems to mistake anecdotal evidence for counter-example. That is to say that most of the critics seem to think that the EMH is written like it's a logical absolute (therefore only needing a single counter-example to disprove) however from what I've read - even here in the Wiki sounds more like a probabilistic statement. Which of course would require a criticism that is also probabilistic. So far only three possible counter examples come to mind: i) Something like "Any formulation of the EMH requires event X to be bounded at odds R but empirical evidence shows that event X occurs much more frequently than R" ergo no reasonable formulation of EMH can be true. This seems like it's going to be hard since these are large datasets. The other possibility ii) would be to explaining a strategy where you can beat the market indefinitely even when everyone knows how to do so - which seems logically invalid. iii) Is coming up with some internal inconsistency which might be the best path to attempt a disproof. Also people don't seem to differentiate between a strategy and a result. For example if I was granted by the Almighty the ability to perfectly predict stock values, assuming I don't sell or otherwise disclose my picks then even though I am consistently and forever making money off the market I would state that this is still not a violation of most of the forms of the EMH since it is difficult for this information to become what "everyone knows". —Preceding unsigned comment added by 206.248.171.144 (talk) 05:25, 28 January 2009 (UTC)
To further my questions I offer the opinion of J. Farmer [1] a critic of the EMH who co-authored a paper with Lo (one of the authors of non-random) "...the fact that the EMH, by itself, is not a well posed and empirically refutable hypothesis" this is starting to parallel my opinion that it's ignorant to call the EMH falsified. —Preceding unsigned comment added by 206.248.171.144 (talk) 05:39, 28 January 2009 (UTC)
The article probably needs more mention of the fact that the hypothesis has come under a great deal of recent attack from both scholarly sources and news sources.Nwlaw63 (talk) 01:18, 5 January 2010 (UTC)
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)
Fama paper "The behaviour of stock markets prices" (1965)says random walk based on stable Paretian distribution NOT normal distribution, so incorrect references on the page ...
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)
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)
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)
This has remained in the lede uncontested for almost a year until an editor simply removed all of the sourced material with no discussion. I have re-inserted the removed material, pending any other consensus regarding the materials. Given how much the hypothesis has been in the news in regards to the economic crisis, it seems entirely appropriate to mention this in the first paragraph - heaven forbid we should make the theory's oft-mentioned relevance to real-world events into a key part of the lede. I've read the lede policies, and I'm fairly certain this material is important enough to have a place in the article. I'd be curious as to the opinions of others here. Nwlaw63 (talk) 21:13, 9 April 2010 (UTC)
Statoman's recent addition to the criticism section, while being something I would agree with personally, isn't sourced, and is written from a personal rather an encyclopedic perspective. If no one objects, I will delete or merge into the rest of the article if I don't find reliable sourcing for it. Nwlaw63 (talk) 20:19, 20 December 2011 (UTC)
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)
This question is particularly relevant for this particular graph, because some fraction of the low P/E companies are priced that way because it is widely known that future earnings will decline. In other words, some of these low P/E companies may well fail, and thus unusually subject to survivorship bias. Furthermore, beta analysis that is based on historical betas will not catch this. Eweinber (talk) 05:23, 22 January 2011 (UTC)
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.
Once factored in, externalities render the hypothesis dead and done. 24.36.78.185 (talk) 03:06, 4 December 2009 (UTC)
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[2] MaxPont (talk) 23:53, 11 December 2009 (UTC)
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)
Apparently, it's been proven that the weak form of the EMH is equivalent to P=NP. http://arxiv.org/pdf/1002.2284v1
I prove that if markets are weak-form efficient, meaning current prices fully reflect all information available in past prices, then P = NP, meaning every computational problem whose solution can be verified in polynomial time can also be solved in polynomial time. I also prove the converse by showing how we can “program” the market to solve NP-complete problems. Since P probably does not equal NP, markets are probably not efficient.
A.Prock 05:05, 6 March 2010 (UTC)
A.Prock 17:26, 11 March 2010 (UTC)Pair betting, described in Section 3.3, allows traders to bet on the final ranking of any two candidates, for example “candidate D will defeat candidate R”. In Section 5, we show that optimal matching of (divisible or indivisible) pair bets is NP-hard, via a reduction from the unweighted minimum feedback arc set problem.
I suspect that part of the problem here is that some editors do not understand the predictions markets, the matching problem, and how they relate to financial markets and the EMH. I'm not sure how best to educate them on this, so I'll try to find some less technical sources that might clarify things. A.Prock (talk) 18:17, 12 March 2010 (UTC)
Aprock, in regards to your reorganization of this section [5], 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)
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)The problem of algorithmically constructing prices which reflect all available information has been studied extensively in the field of computer science<ref>((cite book | year = 2005 | author = Kleinberg, Jon; Tardos, Eva | title = Algorithm Design | publisher = Addison Wesley | isbn = 0321295358 ))</ref><ref>((cite boot | year = 2007 | author = Nisan, Roughgarden, Tardos, Vazirani | title = Algorithmic Game Theory | publisher = Cambridge | isbn = 0521872820)). For example, the complexity of finding the optimal match in a pair betting market has been shown to be NP-hard.<ref>((cite journal | author = Chen, Y; Fortnow, L; Nikolova, E; Pennock, D | title = Betting on permutations | journal = Proceedings of the 8th ACM conference on Electronic commerce | volume = 8 | pages = 326 - 335 | year = 2007 | ISBN = ISBN:978-1-59593-653-0))</ref>. Likewise, it can be proven that the weak form of the efficient market hypothesis is equivalent to the statement that [[P versus NP problem|P = NP]]<ref>((cite web|url=http://arxiv4.library.cornell.edu/abs/1002.2284 |title=Philip Maymin, NYU-Polytechnic Institute, Markets are efficient if and only if P = NP.))</ref>
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)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.
R
"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)
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)
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)
King Brosby, I don't know if your change here [6] 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)
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)
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)
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)
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)
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)
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)
Hello fellow Wikipedians,
I have just modified 2 external links on Efficient-market hypothesis. Please take a moment to review my edit. If you have any questions, or need the bot to ignore the links, or the page altogether, please visit this simple FaQ for additional information. I made the following changes:
((dead link))
tag to http://fr.jpost.com/servlet/Satellite?cid=1244371066953&pagename=JPost/JPArticle/ShowFullWhen you have finished reviewing my changes, please set the checked parameter below to true or failed to let others know (documentation at ((Sourcecheck))
).
This message was posted before February 2018. After February 2018, "External links modified" talk page sections are no longer generated or monitored by InternetArchiveBot. No special action is required regarding these talk page notices, other than regular verification using the archive tool instructions below. Editors have permission to delete these "External links modified" talk page sections if they want to de-clutter talk pages, but see the RfC before doing mass systematic removals. This message is updated dynamically through the template ((source check))
(last update: 18 January 2022).
Cheers.—InternetArchiveBot (Report bug) 05:08, 21 December 2016 (UTC)
Hello fellow Wikipedians,
I have just modified 2 external links on Efficient-market hypothesis. Please take a moment to review my edit. If you have any questions, or need the bot to ignore the links, or the page altogether, please visit this simple FaQ for additional information. I made the following changes:
When you have finished reviewing my changes, you may follow the instructions on the template below to fix any issues with the URLs.
This message was posted before February 2018. After February 2018, "External links modified" talk page sections are no longer generated or monitored by InternetArchiveBot. No special action is required regarding these talk page notices, other than regular verification using the archive tool instructions below. Editors have permission to delete these "External links modified" talk page sections if they want to de-clutter talk pages, but see the RfC before doing mass systematic removals. This message is updated dynamically through the template ((source check))
(last update: 18 January 2022).
Cheers.—InternetArchiveBot (Report bug) 06:47, 18 September 2017 (UTC)
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)
Yeah this section has absolutely nothing to do in this article. I'm removing it. Seirl (talk) 16:11, 16 July 2019 (UTC)
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)
I have tried to include Pilkington's epistemological critique of the EMH on this page. It seems like a perfectly robust critique to me. It is getting quite well-known in financial circles. And it has been cited in peer-reviewed journals (see here: https://www.tandfonline.com/doi/abs/10.1080/08911916.2018.1517462?journalCode=mijp20).
One user claims that the theory is 'fringe' but it is not at all clear to me what that might mean. Can someone make a robust case against including this theory or else I will put it back up by the end of the week. Thanks.— Preceding unsigned comment added by O5o7 (talk • contribs) 16:18, 21 May 2019 (UTC)
Thanks for that. Let me take it point by point. First, the question of the tautology. In his book Pilkington discusses the critiques of other aspects of marginalist theory as being tautological. For example, Hans Albert and Joan Robinson claim that utility theory is tautological. Alberts' critique is one of the main ones in the literature on the philosophy of science and was picked up by Imre Lakatos' student Spiro Latsis in his seminal paper. What I'm saying is that critiques of aspects of marginalist economic theory being tautological are quite common. What is meant is simple. In the post-Popperian philosophy of science literature, a theory is deemed tautological if it cannot be tested against reality. Pilkington is claiming that this is the case with the EMH because, since statistical technique cannot distinguish between 'luck' and 'skill', the theory cannot actually do what it claims to be able to do. This is because the idea of an efficient market is one in which no one 'wins' in the long-run except by luck. But if you cannot prove that those who do win in the long-run have done so by luck then you can't prove or disprove the theory.
Onto credibility. Pilkington's book is published by a reputable academic publisher (Palgrave Macmillan). This publisher engages in peer review of their titles. In addition to this, Pilkington's views are discussed in at least one peer reviewed paper (and note the book is only two years old, so this is quite impressive). It's also endorsed by two well know economists (James Galbraith and Robert Skidelsky) and has been reviewed in the Financial Times. Finally, Pilkington himself works for a major and well known financial firm (GMO), so we can only assume that he's fairly familiar with markets and how they work. I think that this is ample criteria to pass the credibility test.
Regarding undue weight, I think what you're saying is actually quite fair. Perhaps my edit was too long. I am more than happy to try to shorten it.
But let's allow others to weigh in before we agree on that. Is that all fair to you? 2A02:C7F:C642:7100:9EA:4F92:B0D1:EFEC (talk) 16:17, 25 May 2019 (UTC)
This article was the subject of a Wiki Education Foundation-supported course assignment, between 6 September 2023 and 14 December 2023. Further details are available on the course page. Student editor(s): HELLOEXTRACREDIT (article contribs).
— Assignment last updated by SUpercool2154 (talk) 23:59, 18 November 2023 (UTC)