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Comment by bdjsiqoocwk | Hacker News Reader

I wish this would shut up the disciples from the church of Efficient Market, but I know that it won't.

How does this discount efficient market hypothesis? You can find plenty of examples of people buying 2$ lottery tickets and becoming millionaires.

If you believe the EMH you shouldn't compare stocks to lottery tickets. It sounds like you just don't want to look too closely.

Let's try differently. What evidence would you require to conclude "EMH is false"?

Edit: I have to make this edit because someone will point it out. YES I realize I didn't actually answer your question but the thing is this has been discussed ao thoroughly that I don't think i have anything new to add.

The only thing I can think of that would disprove EMH would be an arbitrage opportunity that doesn’t go away by using it. If you can arbitrage continuously and without limit and the difference you’re arbitraging isn’t decreasing, that would contradict EMH. Since that’s pretty much the only claim of EMH, multiplying your money by taking high risks doesn’t really contradict it.

In HFT there are loads of arbitrage opportunities that don't go away by using it if you're the fastest.

EMH disproven guys.

They do go away, that’s why you have to be the fastest. They also are limited, you can’t arbitrage them with an arbitrary amount at once because this makes the difference disappear.

By "go away" I thought you meant over time by people exploiting it it would disappear. If you have two exchanges trading the same instrument, whenever the instrument is priced differently you can buy one and sell the other. This will "nerve go away" because it will still be true 20 years from now. Of course that every time such an opportunity occurs itself it has finite capacity.

So, I misunderstood what you meant, but what you meant is even dumber than I thought. What you're saying is a source of free money. That has nothing to do with EMH whatsoever.

What claims does EMH make in your opinion?

There's various versions, usually named weak version, strong and strongest. I don't remember which one is which, but the one I find interesting is "all publicly[1] available information is already incorporated into the prices". This is not a statement of absolute certainty but a statement on expected values. The reason I said your claim is dumb is that it's equivalent to "EMH says there's no infinite free money". I'm pretty sure everyone agrees there's no infinite free money, that's so obvious we don't even give a name to that hypothesis.

[1] how to define what publicly means exactly is also a question on itself which is important but not theain point here.

But „all publicly available information is already incorporated into the prices“ is exactly the reason why there’s no free money. It means that any difference between expected value based on new information is immediately arbitrated away and the actual value adjusts.

> and the difference you’re arbitraging isn’t decreasing

You literally said this, which means _infinite_ capacity. But now you're omitting that.

So what I'm reading is that your position is "EMH can only be falsified if someone finds infinite free money". Alright, this is what I call the church of the Efficient Market.

I don't know if you're trolling or just ignorant. I'm leaning towards trolling. Either way I've lost interest the conversation.

I am seriously not trolling, I’m just not sure how EMH is even controversial.

I also don’t get what I’m omitting. If you have an arbitrage opportunity, EMH means that this opportunity will disappear over time because the information that the opportunity exists spreads around and the opportunity is used up. That’s why EMH would mean that you can’t make infinite free money by arbitrating the differences. That’s what I meant and I still stand by it.

> So what I'm reading is that your position is "EMH can only be falsified if someone finds infinite free money"

Basically yes, and I’m not expecting EMH to be disproven because it’s pretty obvious.

What else would contradict the pretty basic claims of EMH?

That doesn't prove or disprove the EMH.

The EMH says that you can't predict a stocks price in the future give the past data.

HFT just reacts to price changes, it doesn't really predict what it will do in the future so it really has no relevance to the EMH as they are only reacting to what prices did in the past, albiet the very recent past:)

What do you think the Efficient Market theory says?

As I said in a sibling comment, the interesting version of EMH is "all publicly available information is already incorporated in the price".

People who believe it to be false, also believe that "if I analyse all information about some stocks I might find some which are priced less than their intrinsic value, wait for everyone else to come to the same conclusion, and once the price has appreciated to intrinsic value, I can sell it"

People who believe it to be true believe that the above is futile, because whatever price you see is already the intrinsic value so every time you try and buy at discount youre actually unknowingly buying at intrinsic value, and so you make no profit on each buy.

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