Tuesday, October 7, 2014

Now they've got me defending the efficient market theorem...

I know it's trivial, but this one has always annoyed me.


There are cases where the conventional wisdom is so screwed up that the market reads bad news as good news and rewards stupidity, but otherwise, in a reasonably efficient market, stocks only go up when bad news beats expectations if they had already gone down as the expectations had rolled in. They are, in other words, making up some of the lost ground. Financial reporters love the "went up on bad news" story but they almost invariably fail to mention how the stock had been doing before.

Don't get me wrong. I'm still not a fan of the EMT, but on this one, at least, I'm willing to give them a pass.


No comments:

Post a Comment