Snippa proves the efficient markets hypothesis

As we all know, for Ritchie has been telling us so at length, the efficient markets hypothesis is wrong. Markets do not process information efficiently therefore wise and good people like Ritchie should countermand what markets say and do.

Hmm:

I can’t be alone in thinking coronavirus is now the biggest short term problem facing our economy: stock markets in the USA and UK continued their downturns yesterday. The reality that this virus could trigger a major economic crisis is beginning to dawn on markets.

So, new facts arise and prices change in markets. That looks like markets processing information efficiently to me. And as Ritchie himself is pointing out, those markets have reacted faster than politicians have done. And that Ritchie is taking the market price movements as a guide to the seriousness of the problem shows that he thinks markets are processing information efficiently too.

Because, of course, people who thought that market prices don’t matter, or don’t contain information, wouldn’t use market prices as guides to their own thinking, would they?

9 thoughts on “Snippa proves the efficient markets hypothesis”

  1. As usual, when looking at market movements, I’d be asking what’s the volumes traded, not how far prices have moved. Is this actual selling & buying. (for, by definition, every seller must have a buyer)? Or offers not finding a bid?

    And as someone with a fair bit of experience, I’d say no, stock markets are lousy at processing information like this. Which is why you’re seeing exaggerated movements. They swing from optimistic to pessimistic on the slightest whim. Underneath the froth of the market – which represents the minuscule proportion of securities actually being traded – is reality. Where not much is happening. Or is likely to happen. Who would sell to who? The lag-time on whatever effects the virus will have on company profits is what? 6 months? A year? By which time it’ll all be discounted in the price & markets will be chasing some other fox.
    It’s actually commodity markets I’d be looking at. They measure a flow not a stock.

  2. The thoughts of Ritchie are highly schrodinger. I thought we all knew that. At the same time as he says that markets process information, he knows that markets don’t and vice versa. How his brain is able to process this degree of uncertainty is one of the wonders of the age

  3. Bloke in North Dorset

    Diogenes,

    I’m the same age as Spud and I’m finding more difficult to remember what I said 5 minutes ago, let alone 5 months. The difference is that most of us accept being corrected when its pointed out and thank the person, he just goes on the offensive.

  4. It isn`t necessary to justify every price set by every market at any time, or to argue that the market will always produce the best utilitarian answer. It is only necessary to imagine the allocation of goods, resources, risk and endeavour, by means of a plan, any plan, to see how absurd the argument against markets is.
    I strongly suspect that the reactions to the corona virus is an over reaction, the inverse of a speculative bubble, but a defined external emergency is about the worst area for pricing to be of much use. We do not run armies according to the market and we have not , generally speaking felt that the market can provide education health or infra structure, at least not unless the long term strategy is set by Public Policy.

  5. With commodity markets, each commodity traded will have its peculiar characteristics distorted by current effects. The people trade in those markets will understand these. With share markets you’re dealing with a bunch of no-nothings have little more expertise than the people posting here. Most of them, their expertise consists of having read something, written by someone who’d read something by someone else, who might have known what they were talking about. Why investment managements largely consists of underperforming throwing darts blindfold at he back page of the Pink’un.

  6. I should have added for Newmonia’s benefit, nevertheless vastly outperforming governments who can be guaranteed to make inappropriate decisions whatever the circumstances, as they’re not so much addressing the problem as concerned about how they’ll look addressing the problem.

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