Efficient markst hypothesis?

How can people possibly defend it? So in 2006 houses in america just happened to be worth 3x as much as they were in 2008?
Ya ok!!!

Other urls found in this thread:

en.wikipedia.org/wiki/Tulip_mania
free-iqtest.net/
iqtest.dk/main.swf
en.wikipedia.org/wiki/Causes_of_the_United_States_housing_bubble#Mandated_loans
twitter.com/NSFWRedditImage

Nobody with an above 90 IQ defends it user, because it's actually impossible for every single person alive to have equal and perfect information.

>in 2006 houses in america just happened to be worth 3x as much as they were in 2008?
sure user.
user was just a baby in 2008. what does he know

Congrats, you debunked one of the most researched and controversial topics in the history of finance in two short sentences.
May your wisdom guide us.

>most researched

Well, im only 20 iq pts behind a man (einstein) who debunked the majority of physics by thinking about trains. And seeing as physics deals with true complexity and econ does not, its even more reasonable for a 140 to be able to trash econ than it was for a 160 to trash physics ;)

Aww cute - look fellas he's telling strangers gis IQ online!

>efficient markets
>selling apples to some random country while, at the same time BUYING from them, is totally a great idea.

Why don't you learn what EMH is before trying to discuss it. Your example has nothing to do with EMH.

>internet IQ formula: take claimed number, divide by 2, add 20

Wiping out a bubble that is over valued by 3x in 2 years is really efficient.

>Implying you have a high IQ
>Writing pattern of a socially retarded unconfident autist
>Not killing yourself
Go debunk the reason why you were born, starts with broken and ends with condom.

>140 IQ
Stick to shrimping, Forest

>So in 2006 houses in america just happened to be worth 3x as much as they were in 2008?
yes, supply and demand
>Efficient markets
it is definitely efficient, the problem you're having is that other factors outside of the supply and demand may make the values inauthentic. the market's efficiency can work towards completely false values, when this happens it results in a popping bubble, this has been well known for quite a long long long time. en.wikipedia.org/wiki/Tulip_mania

user, do you believe in supply and demand? While einstien didn't discover gravity, he did accept it existed.

In 2006, the demand was much greater because it was very easy to get a mortgage. In fact, retail brokers would sign them away since banks would literally buy all mortgages.
To make things clear, banks had a greater demand for mortgages than there was a supply. So mortgage brokers would give more out than they should have.

If everyone could get super cheap mortgages, then they had a huge demand for houses. Once, again, more houses than the country had available. This increased the cost of houses in 2006 to incredible levels since development companies were shitting out more than they could possibly handle.

Efficiency here argues that supply will meet the demand, and supply was trying to.

In late 2007, the interest on variable rate interest loans increased. Why? Because of demand. These loans had a slight increase in rates, as variable rate loans do, and suddenly the poor people that could barely afford the loans couldn't afford them at all.

To explain it a bit better, mortgage brokers couldn't comfortably give out fixed rate 30 year to college graduates and walmart cashiers, they had to do something to make up for the low expected default rate. Variable rate was the answer.

Slowly, more people started defaulting at a higher rate than the banks could afford to back. Banks need an X minimum of liquid assets for their insurance. Well the lost that and insurances had to cover the differences. Then insurances lost their money coverage and started going down.

Many houses went up for sale in 2008. The supply was much higher than the demand. The price of a house decreased because people couldn't get loans anymore and everyone needed to sell.

I'm no einstien, but I hope that explained how the market functions.

Now that's some funny shit right dere mane

market efficiency has a correlation with liquidity. the more liquid a market is, the more fair it's pricing is, which means that market makers lose their edge.

there is no market that is truly efficient, but some get pretty damned near it

> " i think that smart ppl dont hang out on a degenerate hangout like this because i want to hallucinate that i am the biggest fish in the local pond"
theres bigger fish than u, modestfag...
also, nobody claims a 240 iq, so ur equation is probably only valid for you...

I think you are trying to explain how the market created this crisis and how it was 'efficient.'

But the market created this crisis only due to government involvement. Government backed enterprises, like fannie mae, messed up the mortage market, because fannie backed mortages, artificially reducing the risk to banks.

>theres bigger fish than u, modestfag...
I guarantee you there's not, not on this board.

And I never said there's no smart people on biz. What I said is that you are most certainly not one of them.

Here's my 135iq theory.

People got ripped the fuck off.
You're an idiot if you paid $500k for a 1 story house. Unless it's made of fucking gold or sitting on top of a fucking half ton diamond.

Fucking kek.

There's really some people that still believe in the efficient market theory? Holy shit I hope that there are none of them on this board and giving financial advice.

u dumb
>146

That only speaks to how much of joke the discipline is.

The problem with the EMH is that it relies on the assumption that an object's current price represents its true value. This in turn relies on the assumption that the market (the sum total of investors), absolutely 100% of the time is correct in its assessment of a thing's worth.
>The EMH was developed by Professor Eugene Fama who argued that stocks always trade at their fair value
The problem is, anything that relies on human assessment being accurate 100% of the time is wrong from the outset. Humans, even in bulk, are never correct all the time in matters that require some analysis.

My own hypothesis, in rebuttal to the EMH, would be the following:
Current price represents predictions investors have made about the future performance of an asset based on available information. Since predictions are often wrong and in this case a faulty prediction means a stock with too low or too high a price it's possible to capitalize on this error in judgment by avoiding overpriced stocks and buying underpriced ones.

EMH doesn't say markets are efficient at all times. It simple states that abnormal rates of return above the risk adjusted rate isn't possible over long periods of time. EMH is also said to exist it different forms (weak, semi-strong and strong). So depending on what form exists certain things will or won't work in investing.

Please stop writing accurate and thorough posts. You'll scare the wannabe Wolves of Wall Street that are convinced EMH must be a lie because they plan to make a killing in the markets.

The irony is that OP's example proves EMH true because the bubble wpopped

The Wannabees of Wall Street heh.

if ur iq was above 140 u wouldnt be as butthurt about the concept of a 140 hyp grad lurking this beta barn..
so the logical conclusion is that ur iq is lower than 140 (possibly much lower)
if you met me in real life you would instantly be blown into a world where all that mattered was getting me to acknowledge your existence and even hopefully be your friend... But i would probably find you to be a desperately uninteresting person and want you to exit my awareness as fast as possible.
the fact that i dont lie about my iq is what gives me the edge necessary to call you an inferior little girl who couldnt understand basic physics, and BE RIGHT ABOUT IT.
honestly if i woke up one morning and for some reason my thinking capacity had devolved to your level, it would take me less than 5 min to run to the kitchen and slit my throat...
maybe your going to tell me u work at goldman..
but ud still be way inferior, as is anybody who projects their iq to be higher than it is..
maybe thats the point, inferiorboy ;)

No it isn't. A popped bubble is just a market correction. The market was temporarily out of sync with the fundamentals and we had a correction. Markets are efficient in the long run and therefore abnormal rates of return are not possible, according to EMH.

is this guy ok?

is this oc? this is such a nice pasta

>This isnt a fucking game, kid, this is my life. Live on the Alaskan tundra for a year and we'll see how your habits change when you come out the other side. You wake up and spit your morning loogie down the sink. I swallow it for sustenance. You're the kind who throws away bad milk. I make sour cream. You tie your shoes before you leave the house. I use one long lace between them both to save $ on shoelaces, faggot. I shit in a diaper for a year cause I couldnt afford to flush. Ever heard of a lambskin condom? I fuck lambs with a condom.. cause women are just too pricey. I have a mustache, cause it gets me free hotdogs. You're up a paddle without a creek, richboy. Ill only tell you once: I keep my promises kid, cause I cant afford to lie.

If it works in the long term, then it works on a smaller scale in the short term

You're just arguing semantics for no reason

i don't know my iq is it important to know?

The real question is how can you actually guage someone's IQ? none of the online IQ tests are the same and all spit out different results.

seemed to me the iq test problems are overwhelmingly pattern recognition based and largely practicable. basically if you give it a few months just practicing tests you can greatly improve your score. so what do they prove really?

Certain things do work in the short run though (behavioural finance), which is also probably why the momentum factor yields the largest returns and why there is the emergence of HFT. But the market acts as a self-correcting near perfect discounting mechanism. So for the retail trader and most professional investors abnormal returns just aren’t possible. Look at hedge funds and mutual funds. Isn't it odd how they seem to underperform the market by almost exactly the amount they take in fees?

EMH actually makes it easier to make money in the market.. The assumption that EMH functions (stock prices are accurate based on all available information) means that many traders can focus only on prices and largely ignore company information when making decisions.

Well they arent really meant to be practiced. Meant to be taken once and then that's it.

for example I just did this one for shits.
free-iqtest.net/
Only took about 5-10 minutes and I got an IQ of 140 apparently.

I think its speed related too because I took the test again and answered with all the same answers(I think). This time I got 157

m8, you are dumb. do this one: iqtest.dk/main.swf

Holy FUCK I think like 90% of this thread literally does not know what the EMH even is.

Any financefags in this thread having a giggle right now?

Trying to edumucate....

Kinda rushed it and guessed near the end.

Seems like people just don't want it to be true rather than arguing any logical points, it's like they think you can't make money if EMH holds or something.

>How can people possibly defend it? So in 2006 houses in america just happened to be worth 3x as much as they were in 2008?
>Ya ok!!!
Wasn't free market--
en.wikipedia.org/wiki/Causes_of_the_United_States_housing_bubble#Mandated_loans

Short version: the US govt is the source of (fiat) currency, and decided to give out loans to lots of people who couldn't really afford them.

Points to ponder:
1. Govts prefer fiat currency since they can enable or disable specific economic activities as they wish. There is no more "free market".
2. The desires of a government are not necessarily the same (or even compatible with) the desires of the people they govern.

You're doing God's work

I'm just having a laugh at the rest of the thread. The EMH isn't even a difficult concept, and yet everyone basically just conjures up what they THINK it means w/o ever reading about it and then refute it for themselves. Smart kids.

>The assumption that EMH functions (stock prices are accurate based on all available information)
You can't even state the hypothesis correctly, so why should anyone listen to anything you have to say?

Stop. being . stupid.

The EMT states that all prices reflect all fully available information.

In reality nobody has all available information.

Time 4 suicide fampei

No it doesn't. Please read and reflect on why you're so stupid you not only posted incorrect information, but you jumped into a thread where the correct information was already posted and you either didn't read it or you couldn't comprehend it.

Jesus, this thread.

You now realize that you're spending time actually posting in this thread.

T I M E
I
M
E

F O U R

S U I C I D E
U
I
C
I
D
E

t. a deluded Bernie supporter

>gets #btfo #rekt
>pretends he was trolling all along

waste time shitposting calling people stupid.
don't say a single thing on actual subject.

kk bro

S U I C I D E

I told you 19 hours ago that OP didn't understand EMH (). No, I didn't take the time to explain it, because most of you retards are incapable of understanding it anyway.

So, diaf faggot.

This is the most retarded thing I've read all day. If prices and predict asset movements then the market isn't even weak form efficient. Please name one market in the world that isn't even weak form efficient.

People are too dumb here and are not contributing anything or asking the right questions. Unfortunate because this is one of the most important topics in finance and investing. So fuck it I am going to tell you how to make money even if markets are efficient. You just need to load up on premiums ie. value, momentum premiums, size, market, profitability, investment ect.

I already stated the definition.

Here's my 124 IQ theory. You have no idea about supply and demand.

Demand wont remain this high forever

you're assuming demand has anything to do with the local market.

Land values are increasing not because individuals in the area can afford the houses, but because investment banks and foreigners are buying up the houses as investments.

Also, politicians are going to do everything in their power to keep land values going upwards. 1) more property tax. they can even lower property taxes to make the base happy while the actual cost goes up 2) old people will shit if their houses go down in value. a lot of people view their houses as savings. These boomers got into the market during the late 80/90s and they don't give a fuck about the millennials want of a home or stability, they just know that they are sitting pretty with a ton of unearned income.

Boomers didn't get it quite as good as the "Greatest Generation" but they lived in a time when the American Dream was somewhat possible.

Yeah I know that. Like you said, a lot boomers retirements are their homes. Are you saying that every house that's built in Canada is going to be bought by foreign money? Because my millenial generation can't afford this housing now let alone if mortgage interest rates start to rise. I'm currently laid off as a 3rd year apprentice as well.

I'm saying home ownership might become a thing of the past for most Canadians/Americans in first tier cities due to wealthy foreigners and investment banks buying up the lots. I mean the average house in Vancouver is at what 1.7 million? Who the hell can afford that? Toronto has bidding wars. Normal people (that are responsible) can't get involved in these stupid bidding wars.

And it isn't an issue just in Canada or the U.S. it is many of the world's first tier cities that are becoming un-affordable for anyone but the world's richest people. What makes Canada and the U.S. attractive for investment for homes (in terms of just sitting on the property or eventually living in) is the fact that we have a stable gov., stable currency, decent public schools (more so in Canada), rule of law, and so on. Basically, many of the things that many people over look when they hyper focus on taxes relationship with investment.

My guess, mind you I emphasize the word guess, is that Millennial's will eventually benefit from their parents' homes, IF their parents don't sell them and use up all the money because they didn't save properly for retirement. However, the benefit of the parents' home might come when the Milliennials are 60 years old and life is basically over.

North American Boomer executives made themselves very wealthy by ending Fordism and sending labor overseas. The gov and voting public watched it happen. And when individuals voted with their money they chose job insecurity and low wages by shopping at Walmart, instead of an American middle class by shopping at places that paid decent wages but cost 6 cents more.

My parents home is only work 400k (1200sqf) because its not in a major city like toronto. Although I really wonder how many of the average baby boomers actually have their house fully paid off. From what I hear word of mouth is a lot of people are working into their golden years because they cannot afford to retire. They are also preventing millenials from entering the workforce because these jobs are still taken.

>EMH doesn't say markets are efficient at all times.
Yes it does
See:
>The EMH was developed by Professor Eugene Fama who argued that stocks always trade at their fair value
This means that nobody ever buys or sells stocks at an irrational price. One shouldn't even need to think about it to see that this is untrue.

EMH has been proven countless times. If you fucks really think you can gain abnormal return on the long term let me lmao

EHM doesn't say that at all. People can act irrational in the market place and EMH still holds. As long as most people in economy act ration we will still have price discover and there for efficient markets.

I think it’s great that people don’t believe in EMH, this leads to better price discover in this negative sum game. All I have to do is sit back and passively invest and I will always beat the average, or I can load up on risk premiums and beat the average by a wide margin.

>All I have to do is sit back and passively invest and I will always beat the average, or I can load up on risk premiums and beat the average by a wide margin.
Just buy low P/E shares and you're set.

It only takes a few smart investors to push the price to the efficient level.

Deviates back to mean

I've been here about 2 days now and I no longer believe in EMH. It obvious to me that people here know that they are buying dog shit yet they buy it way (MEME stocks, cypto's ect.) This placed changed my entire out look on investing. Despite being fairly educated on the subject even publishing papers on investing I have done a complete 180 and now believe in irrational exuberance.

Laughed so fucking hard at this, so going to use that line

If you have the government issue shitty loans and have the FED print the money, that everyone that wants to buy a house can get with just a promise to pay it back then the retards will start buying houses with their phony money and exponentially buy even more houses, so the bankers aren't afraid to give out even shittier loans, because the shit just hits the roof and even when the retards default, the bankers can auction the house and still get their phony money back. When too much retards default on their loans, then the house prices start crashing and the whole shit hits the fan. It is pretty efficient, considering the economic circumstances. If the circumstances support retarded behavior, then everyone will start being a retards, because that is what makes the money.

kill yourself

Do you understand the concept of ideal type?

Of course we know that information flow is imperfect. But with the model, se can analyze the deviations it creates on the ideal, the effect of asymmetries.

If you can contruct an analytocal model with fuzzy knowledge and inherent asymmetries in marketplace, go ahead.

It's not even just information though, it's analysis of said information. If you can make better sense of the available information than the market as a whole then there are opportunities for profit.

the only people defending EMH are people that are totally irrelevant(students, NEETs etc.) or professional failures(most academics).