Re:Markets are efficient if and only if P=NP (2010)
by AmericanChopper on Wednesday October 21, 2020 @03:19AM
(#24845501)
> "the market considers all information and synthesizes it correctly"
This is a further misrepresentation of the efficient market hypothesis. The efficient market hypothesis states that the price agreed upon by the market is accurate to a risk-adjusted level, to the extent that it is not possible to consistently beat the returns of the market.
This is generally proven true by the fact that most funds fail to beat their benchmarks in any given year, and the more long term you start to look, the closer the number of funds that outperform their benchmarks gets to 0.
Anybody who "beats the market" on any given day could only achieve that by discovering an inefficiency in the markets decision making. The efficient market hypothesis doesn't say that this is impossible. It says that it's impossible to do this consistently, which is reflected quite accurately in the historical performance of mutual funds. I guess the theory is flawed in the sense that it doesn't define how long you have to beat the market for before you can be considered 'consistent' at it, but I'd consider the small number of funds that achieve this over any significant period as being within the error bars of luck.
This is a further misrepresentation of the efficient market hypothesis. The efficient market hypothesis states that the price agreed upon by the market is accurate to a risk-adjusted level, to the extent that it is not possible to consistently beat the returns of the market.
This is generally proven true by the fact that most funds fail to beat their benchmarks in any given year, and the more long term you start to look, the closer the number of funds that outperform their benchmarks gets to 0.
Page 9 of this document shows this quite conclusively: https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-y...
Anybody who "beats the market" on any given day could only achieve that by discovering an inefficiency in the markets decision making. The efficient market hypothesis doesn't say that this is impossible. It says that it's impossible to do this consistently, which is reflected quite accurately in the historical performance of mutual funds. I guess the theory is flawed in the sense that it doesn't define how long you have to beat the market for before you can be considered 'consistent' at it, but I'd consider the small number of funds that achieve this over any significant period as being within the error bars of luck.