In case anyone wondered if there is an INefficient Market Hypothesis...
Farmer et al. 2013. The Inefficient Market Hypothesis
https://www.amse-aixmarseille.fr/sites/default/files/_dt/201...
The paradoxical efficient market hypothesis (2024)
91–94 of 94 posts
Re: The paradoxical efficient market hypothesis (2024)
#92Earlier quoted context omitted.
How often is "You should pay me much more, it will make both of us wealthier" a winning argument when asking for a raise? Trade very much is zero sum, at least some of the time. Prices are set by power disparities, not by abstract concepts of relative value. One of the many problems with mainstream econ is that gloms together a whole set of unrelated interactions in a single crude concept of "price." In reality share…
Prices are set by supply and demand, which you may choose to label as "power" as a matter of a priori definition, and to some extent that will be a suitable label, but you would be throwing a way a whole deal of explanatory power by insisting on such a rhetorically loaded framing. > How often is "You should pay me much more, it will make both of us wealthier" a winning argument when asking for a raise? A great deal.…
Other theories of price setting (non-classical and non-marginalist) exist, for example the sample chapter of this book, which describes how the existence and prevalence of markup pricing was discovered independently several times over the past century.
F. Lee, 1998, Post-Keynesian Price Theory
https://assets.cambridge.org/97805213/28708/sample/978052132...
Also see Nicholas Kaldor's Economics Without Equillibrium which can be read in an afternoon.
Re: The paradoxical efficient market hypothesis (2024)
#93the hypothesis maintains that stock prices reflect all relevant information about the stock This is a common description of the EMH. But every time I read it, I think: Does information really directly impact the price of a stock? How? What if it takes 12 months of hard thinking to draw the right conclusion from the information? Are there many investors who go to such lengths? Are they all thinking at the same speed?…
Information asymmetry is a thing, but EMH nominally handles that; prices quickly shoot up to the max any one guy is willing to pay
Suppose we have a stock and a bunch of investors. All of the investors have some set of information implying a value v. Except, one investor is smarter and finds an edge (rise of AI or whatever) which implies a value of 2v.
That investor will buy the stock any price up to 2v. The rest of the investors will be happy to sell at any price above v. Given unlimited money the price should stabilise at 2v very quickly.
However there are lots of real-world caveats like, not everyone has an infinite money glitch.. and there are probably second-order and third-order effects like some hedge fund notices the pattern and does XYZ which influences price... options make price a function of expectation of price, then the price of options is driven by the expected price of the same options near execution date... idk
Re: The paradoxical efficient market hypothesis (2024)
#94Earlier quoted context omitted.
Not necessarily. You could have a transaction take place where the buyer and the seller both value what's being exchanged in exactly the same amount and then go through with the transaction anyway because they both find trades entertaining or have a cultural preference for doing business with each other or just both place zero value on transaction costs. That isn't common but that doesn't mean it could never happen.
> they both find trades entertaining or have a cultural preference for doing business with each other That is value. It is any benefit they capture which they would not otherwise.
That's value from doing any transaction, not value from the thing you bought. They'd get the same value if they were trading seashells or shiny rocks.