Market Efficiency and Framing a Market

[JayBee66]

So would you agree that the Random Walk doesn't apply during those periods (as otherwise it wouldn't be possible to profit long-term in such markets)?
Jeff

That is what semi-strong form efficient means.

You should read what I wrote in my earlier posts and not what you wanted to see.

[Iron]

So would you agree that the Random Walk doesn't apply during those periods (as otherwise it wouldn't be possible to profit long-term in such markets)?
Jeff

That is what semi-strong form efficient means.

Here's what it means:

'A class of EMH (Efficient Market Hypothesis) that implies all public information is calculated into a stock's current share price. Meaning that neither fundamental nor technical analysis can be used to achieve superior gains'. (Emphasis mine)

Read more: http://www.investopedia.com/terms/s/sem ... z1q1rmyiR4

Therefore, in such markets, it shouldn't be possible to profit long-term from trading if they are, as you appear to be saying, semi-strong efficient. Yet you also seem to be saying that it is possible to profit long-term in such markets. Perhaps you could clarify your position...

You should read what I wrote in my earlier posts and not what you wanted to see.

Let's focus on the issues rather than making comments which could be seen as condescending.

Jeff

[Iron]

There have been many people trying to push the price of commodities by weight of money. They have all failed and bankrupted themselves.

That's quite a claim. What evidence do you have of that?

The statistics show that SP prices are efficient because they represent the true odds over time.

Again, what statistics?

Jeff

[dav3214]

Let's say you have 1000 horses with average true odds of 5.0. 500 start at 7.0 and 500 start at 3.0. Overall, the market is extremely efficient on one level, but extremely inefficient on another.

Some samples

av bfsp 3 Runs 1063 Wins 344 (32.4%)
av bfsp 4 Runs 1248 Wins 328 (26.3%)

There is a clear correlation between the sp and the winning chance. The information that the market uses to set the above prices is generally reliable.

Presumably your point is that what is happening is that people are tossing multiple biased coins - none of them are even money but over the large sample they appear to be? For that to be correct wouldn't there have to be quite a lot of information (just like the coin bias) that the market ignored/was unaware of when it set the prices?

That might have some merit, I suppose, and I spend a fair bit of time looking for little nuggets that might be an edge. Although the problem with using a method like this, is that surely the price of the golden geese will over time be shorter than horses that don't have the golden goose factor.

I suppose that the main point is that the markets are getting more accurate over time and today they are surely more accurate than they were 10 years ago and eventually all possible public information will be correctly factored

[Iron]

Hi Dav

What I'm saying essentially is that markets don't conform to normal distribution where trend lengths are concerned, but exhibit kurtosis (a fat right tail). If they didn't, then it wouldn't be possible to make a long-term profit as a swing trader. And btw, the success of trend followers over tens of thousands of trades in the financial markets refutes the Random Walk hypothesis pretty soundly, but I digress!

Let's assume for argument's sake is that, despite the aforementioned kurtosis, the BSP is extremely accurate. One possibility is that horses that drift irrationally from (say) 5.0 to 7.0 are cancelled out by those that steam irrationally from 5.0 to 3.0 where overall market efficiency is concerned.

Jeff

[switesh]

Just stumbled upon this interesting site:
http://blog.danmachine.com/2011/03/stoc ... ysing.html

I found the articles quite interesting, though sometimes a bit too technical for my understanding