NetNews Usenet Archive 1992 #31/NN_1992_31.iso/spool/misc/invest/15308

Internet Message Format | 1992-12-23 | 2.0 KB

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From: [e-mail] (Robert Virzi)
Newsgroups: misc.invest
Subject: Re: "Market efficiency"
Message-ID: <[e-mail]>
Date: 23 Dec 92 13:38:35 GMT
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I just want to add a note on "Market Efficiency."  In its simplest form,
"THE stock market is efficient," the theory is flawed.  However, if
the hypothesis is restated to, "there is efficiency across ALL markets,
including US and international stock, bond, money, and commodity markets,"
I think it is basically true.

In the more comprehensive form, we see that apparent anomalies in one
market, say the US stock market, may be explained in terms of conditions
in other markets, the US bond market, for example.  When you look at the
whole picture, you can see how large (and I do mean large) sums of money
flowing between types of investments can cause temporary inefficiencies
until the underlying fundamentals are brought into alignment.

Two points of clarification on the above argument.  (1) It applies to
overall market valuation, not to the valuation of specific stocks. This
case was discussed in the group re: Tulip Bulbs and Mississippi Shares.
(2) Efficient does not necessarily equal rationale.  Although the relevant
information is integrated into the price of the {stock|bond|commodity} do
not forget that it passes through a human filter.  So peoples perceptions
of the meaning of the information are reflected, and people are not always
rationale.  In the great majority of cases I think people are rationale
in evaluating investments.  There are cases, however, when emotions play
the predominant role.  These don't last long, however.

My ramblings, anyway.

-Bob



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