[Guvante]

> Markets are not efficient and all data is not priced in

EMH says that all publicly available data is priced in. The strongest form claims all data, but no one believes that (insider trading alone debunks it).

I would postulate that given the data available right before the crash, you would probably end up with similar results to what the pricing was at the time.

Note that one thing people have a hard time understanding with EMH is externalities, such as enthusiasm or whatever the opposite is called for a product or class of product.

> those are the profit opportunities that traders make a living off of

EMH relies on people making a living to function, the price setters need to do well or else enough won't be attracted to make the market efficient. You are correct that this kind of problem makes anything but the weakest form difficult to prove.

> the systematic risk that crashed the market could not have occurred

Why? One major factor in the crash was that people started walking away from their homes. Historically this didn't happen. If all of the data points to stability in mortgages, you cannot expect people to divine that problem, nor does the EMH require them too.

[lutusp]

> The strongest form claims all data, but no one believes that (insider trading alone debunks it).

Insider trading doesn't "debunk" the EMH, because the EMH is predicated on fair dealing. There's a lot of distorted ideas about the EMH, for example that a market crash, or cheating, disproves it. These events don't disprove the hypothesis.

[gnaritas]

> These events don't disprove the hypothesis.

Then the hypothesis is useless and false. You can't claim markets are efficient and then exclude all evidence to the contrary.

> because the EMH is predicated on fair dealing

Yes, which makes EMH false in the real world. A hypothesis that's only true in an ideal world isn't useful nor is it meaningful in the real world.

[Guvante]

> A hypothesis that's only true in an ideal world isn't useful nor is it meaningful in the real world.

You are not treating EMH like you should, think of it as a guideline not a hard and always true rule of life.

For instance lets say Telsa is trading for $100 and you think it is worth $50, there are two reasons for this, either:

* The market is not efficient and you should take advantage. * The market is efficient and you aren't considering all of the variables.

In almost every conceivable case it is the latter. The answer for Tesla is probably optimism for the technology when optimism often drives prices above the otherwise expected value.

EMH makes you consider the market as the baseline, which greatly helps steer you towards what is going on.