[rhubarbtree]

The EMH is obviously bs, as anyone with an ounce of common sense can observe from today’s market. To appeal to authority, buffet and monger and graham point out how insane Mr Market is, and they’ve done pretty well by exploiting its inefficiency.

Market prices are derived from supply and demand. A heavy determinant of demand is income equality. Another is interest rates. These are nothing to do with, in general, a particular stock.

It’s so obviously false to anyone trading or even watching stocks that serious discussion by academics just adds weight to the accusation that they don’t know what they’re talking about. We need a new, more serious, science of economics.

[tempestn]

All models are flawed; some are useful. I would argue the EMH is an imperfect but useful model of market behaviour.

[rhubarbtree]

You make a good point and I’m open to changing my mind.

How do you think it’s useful? Can it be used to make predictions about the future, for example?

[tempestn]

Aggregate predictions, yes. For example, the long-term, risk-adjusted expected return of all liquid securities should be the same if we believe EMH. Therefore by holding a diversified sample of securities in a market, your expected return should be the same as that of the market as a whole (though actual return won't be). Any expected difference would theoretically be due to a difference in risk.

Now, it may be that the risk is one that other people care about but you don't. Some investors might be more sensitive to short-term volatility than others, for example. But a weak EMH can at least give a framework for thinking about these kinds of decisions. (Like whether to value tilt, for example. Or whether to invest in active or passive funds.)

It also gives you a framework to think about in which cases it is more or less likely to hold. Small, illiquid markets are the least likely to be efficient, in my opinion and experience. My only actively managed investment is in such a market.

[david-gpu]

> Can it be used to make predictions about the future, for example?

Yes: most invested dollars will be unable to beat the market, on a risk adjusted basis and net of costs.