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I’ve been considering the idea of market efficiency and what it means, ranging from a practical investment strategy point of view to a theoretical and philosophical point of view.
The weak-form, semi-strong, and strong version of the Efficient Market Hypothesis states that past prices, past prices + public info, and past prices + private info cannot be used to predict future prices. Rather than considering whether the theory and its various incarnations are true or not, it’s probably more important to consider the degrees of validity, the timescales of validity, and domains where they’re more true or not.
“The opposite of a true statement is a false statement, but the opposite of a great truth is another great truth.”
— Niels Bohr
So perhaps the question of whether there is market efficiency or not is an ill-formed question and leads to equivalently truthful positions.
Perhaps a more useful question would be to consider the conditions if we actually tried hard to make the markets efficient. This would imply that ALL market participants:
- can access to the same information at the same time
- can process the information perfectly, both quantitatively and…
