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120 sats \ 11 replies \ @grayruby 4 May \ on: MONEY CLASS OF THE DAY: Market Efficiency: You Come Into MYYYYY HOUSE?! econ
I have hard time squaring the efficient market hypothesis with the current market dynamic of prices being impacted greatly by passive flows. If you have large buyers at any price whose capital outweighs that of the sellers/shorters how can the market be efficient?
I think any time someone says the market is or isn't efficient, I want to ask them how they define efficient. There are tons of underlying assumptions that I think need to be examined
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I think it's the concept of accuracy that I'd question here. How would you know if a price at any given moment is "accurate"?
I agree that markets are becoming more self referential, but if you factor that self referentiality into what you consider as relevant information then I'm not sure what it means to say that the market is not efficient
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What about bitcoin that has no revenue?
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Typical commodity markets are likely priced fairly efficiently based on expected supply and demand. Bitcoin I am not so sure. We have known production but we can't anticipate demand very well and at what prices supply will unlock as people sell to take profits. I think the Bitcoin market will be highly efficient when it is 10x the size.
That's exactly what I asked in the referenced post.
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yep, this is a good/relevant/level-3 type objection.
Happy to accept that it distorts info/makes it noisier to understand. But it's well-established in the literature that it only takes a small portion of active traders/investors to structurally shift the market price to EMH eq.