Anti-EMH and Antitrust
Sumner amusingly analogizes opponents of the Efficient Market Hypothesis to proponents of antitrust laws:
You have to be impressed by the resourcefulness of the anti-EMH,
crowd. If LTCM and its merry band of Nobel-Prize winning economists
had actually beat the market, if they had used market anomalies to get
rich, well then it would have been the death knell of the EMH. Every
time Fama said “if you’re so smart how come you’re not rich,” people
would have responded that Scholes and Merton did get rich by spotting
market inefficiencies. Instead they failed miserably, and this shows .
. . it show that markets are inefficient because the market can stay irrational longer than you can stay solvent.
The more I study the psychology of the anti-EMH crowd, the more
surprised I am that anyone still believes in the EMH. It seems like
anything that happens undercuts the EMH. It reminds me of people who
see monopoly everywhere. High prices? Clearly monopolistic
exploitation. Low prices? Ah, that’s predatory pricing. The same
price as your competitor? Obviously price fixing.
My main complaint: Scott’s still not buying my simple modification that makes the EMH far more plausible. It’s pretty obvious that investors’ mood swings matter a lot. Why not just say that their mood swings are yet another important hard-to-predict variable that the best minds in the world struggle to forecast?