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Which is exactly what the hypothesis says. Assume that others are using arbitrage to reduce your opportunities, leaving you with an efficient market.
by tatsuke95 13y ago
Which is exactly what the hypothesis says. Assume that others are using arbitrage to reduce your opportunities, leaving you with an efficient market.
- Retric 13y agoExcept arbitration requires more than just money + information, people doing arbitration must have low fees / latency for example so it's not available to all players in the market. Net result real world markets are not efficient due to various access levels. Also: Empirical analyses have consistently found problems with the efficient-market hypothesis, the most consistent being that stocks with low price to earnings (and similarly, low price to cash-flow or book value) outperform other stocks. Which is presumably due to cognitive bias. http://en.wikipedia.org/wiki/Efficient-market_hypothesis http://en.wikipedia.org/wiki/Efficient-market_hypothesis PS: It's a reasonable simplification that's useful for the average investor, but not policy makers for example.