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58 sats \ 4 replies \ @holonite 23h \ on: MONEY CLASS OF THE DAY: Market Efficiency: You Come Into MYYYYY HOUSE?! econ
I understood only 0% of what you said, but as far as what I understood and know I have 2 questions (please forgive me if you think I am a noob)
- If markets are so “effective,” then why do prices often swing way more than real-world news can explain (Shiller, 1981)?
- And if prices are always “right,” how come simple strategies like buying recent winners keep working (Jegadeesh & Titman, 1993)?
To the first point, markets incorporate vastly more information than anyone is aware of. We don't know all of the relevant realized outcomes that investors are reacting too, but there's way more than just what's in the news.
To the second point, I would first want to know if the variance in that strategy is the same. If it's greater, then I'd submit risk aversion might be part of the answer. There are more factors going into prices than just expected value.
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Very good, excellent, high-level objections. Esp that Chiller critique I know him and Fama went back and forth over, but I cant remember who "won" and what were the touching points. Limits to arbitrage, for sure
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lol, whatever their owners want. Uh-hu.
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