reply on: MONEY CLASS OF THE DAY: Market Efficiency: You Come Into MYYYYY HOUSE?! \ stacker news ~econ

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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?

94 sats \ 8 replies \ @SimpleStacker 4 May

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

30 sats \ 6 replies \ @grayruby 4 May

I am defining based on the market's ability to accurately price based on current information and expected future events.

50 sats \ 5 replies \ @SimpleStacker 4 May

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

75 sats \ 4 replies \ @grayruby 4 May

You can't know for sure but a stock trading at 100 years worth of revenue probably isn't priced efficiently. Even if you believe that stock's revenue with 10x, you can't possibly know that for sure.

40 sats \ 3 replies \ @SimpleStacker 4 May

What about bitcoin that has no revenue?

35 sats \ 2 replies \ @grayruby 4 May

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.

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20 sats \ 0 replies \ @Undisciplined 4 May

That's exactly what I asked in the referenced post.

100 sats \ 1 reply \ @denlillaapan OP 4 May

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.

24 sats \ 0 replies \ @grayruby 4 May

I think that's fair but there must be some point as passive continues to grow that it completely overwhelms the ability of active traders to reprice the market.