Efficient market hypothesis: Difference between revisions
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Arbitrageurs, statistical arbitrageurs, value investors like Warren Buffett and Edward Thorp, [[Behavioural psychology|behavioural psychologists]] and, most recently, a bunch of day-traders on [[GameStop|Reddit]], have begged to differ. The gist of their arguments: “the market can stay rational longer than you can stay solvent” | Arbitrageurs, statistical arbitrageurs, value investors like Warren Buffett and Edward Thorp, [[Behavioural psychology|behavioural psychologists]] and, most recently, a bunch of day-traders on [[GameStop|Reddit]], have begged to differ. The gist of their arguments: “the market can stay rational longer than you can stay solvent” | ||
The [[JC]] has spotted a variation of [[EMH]] in the legal world, which he calls the [[efficient language hypothesis]]: | The [[JC]] has spotted a variation of [[EMH]] in the legal world, which he calls the [[efficient language hypothesis]]: {{efficient language hypothesis capsule}} | ||
Oddly, this seems to be taking longer to happen than anyone expected. | Oddly, this seems to be taking longer to happen than anyone expected. | ||
Revision as of 20:07, 8 February 2021
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The efficient market hypothesis, first formulated by Eugene Fama, states (broadly) that an investor cannot systematically beat the market because all important information is already priced into current share prices. This owes something to Adam Smith’s invisible hand: the infinite nudges and impulses of all investors in the market place nudge asset prices to the “correct” or “optimal” point, and anyone misvaluing an asset will instantly be picked off. Therefore, stocks already, always trade at the fairest value, meaning that anyone who did beat the market basically fluked it.
Arbitrageurs, statistical arbitrageurs, value investors like Warren Buffett and Edward Thorp, behavioural psychologists and, most recently, a bunch of day-traders on Reddit, have begged to differ. The gist of their arguments: “the market can stay rational longer than you can stay solvent”
The JC has spotted a variation of EMH in the legal world, which he calls the efficient language hypothesis: the JC’s efficient language hypothesis states that the universally acknowledged advantages in efficiency, clarity, brevity and productivity offered by simple, clear and plain legal drafting are so compelling that sustained prolixity is impossible in commercial contracts, and all bilateral accords will eventually resolve themselves to, at most, terse bullet points rendered on a cocktail napkin, and ideally some kind of mark-up language or machine code. This, the JC goes on to conclude, must mean that the commercial world we appear to live in is just a bad dream.
Oddly, this seems to be taking longer to happen than anyone expected.