Adam Ozimek and Nick Rowe are considering the issue of stock market efficiency, do stock prices represent all the information available.
Grossman and Stiglitz lay out their argument that the Efficient Market Hypothesis cannot be true. The capsule version of my take on the paper is the the stock market reaches a max level of information efficiency when the cost of the additional piece of information is greater than the gains from trade. Hence, uncertainty remains, even in the face of certain information.
I would second Stiglitz to the point that a finite uncertainty level is necessary for markets to operate, the uncertainty level is a natural constant If there is a noise floor, then the market can reach the level of efficiency up to that floor. But not all company information is available to traders.
3 comments:
Not all the information managed by companies, is passed to investors, as regulations proclaim through the norms. The efficiency of the market only occur in theory , we all know it is known as a Perfect Market Situation , which everyone in the market has no advantage of its counterpart, therefore, the differentiation falls , just on the differences of opinions of the future. But the future is uncertain and the methods economists using , calculus with statistics - the so called, econometrics,with its prestige almost in the floor- in trying to forecast the behavior of humans beings; which at end,are the column that gives live to any the market. I includie in this universe, everyone, those who play a fair game, and those unethical investor who have information in advance, or try to induce a bull or a bear market, with the only objective to profit out of the situation, acting in the opposite direction of their opinion in their personal investments,that they manage to filter to the press.
How many times, since the crisis outburst , in our own faces, we have heard that it was over since 2007? and the responsible of the crisis,we have seen them proclaiming,to the press, that the recovery was under way and the following week the markets reacted in the opposite direction:
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