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| Subject: efficient market hypothesis In finance, the efficient-market hypothesis (EMH) asserts that financial markets are “informationally efficient”, or that prices on traded assets (e.g., stocks, bonds, or property) already reflect all known information, and instantly change to reflect new information. Therefore, according to theory, it is impossible to consistently outperform the market by using any information that the market already knows, except through luck. Information or news in the EMH is defined as anything that may affect prices that is unknowable in the present and thus appears randomly in the future. The hypothesis has been attacked lately by critics who blame belief in rational markets for much of the current financial crisis, with noted financial journalist Roger Lowenstein recently declaring “The upside of the current Great Recession is that it could drive a stake through the heart of the academic nostrum known as the efficient-market hypothesis.” (Wikipedia Jan 2010) Phony financial reform By John Schroy, on July 17th, 2010 |  Leave a comment  Unfortunately, instead of a ‘game-changing’ confidence-inspiring reform, the Obama administration presented the United States with the Dodd-Frank Act — a legislative miscarriage that has the potential to hold back recovery and impair the position of New York as a world financial center for decades — unless repealed or drastically amended. July 17th, 2010 | Print Article |  Email Article |  Topics: Barack Obama, Barney Frank, Chris Dodd, complexity, Corporate Governance, Derivative Strategy, dividends, Economic Recovery, efficient market hypothesis, eurosystem, executive stock options, Great Depression, Jeff Skilling, Nobel prize in economics, Pecora Commission, pension plans, rating agencies, risk, Stock Buybacks, sub-prime mortgages, US Congress | Category: Financial Market Regulator, featured | Leave a comment |  Short urlSmooth sailing unlikely By John Schroy, on May 20th, 2010 | Leave a comment  Markets can be inefficient for different reasons and persist for long periods. The transition between one type of inefficient market to the next is usually a period of strife and uncertainty which may last five to fifteen years. Looking back at how the economy emerged from previous transitions, I note that in each new period, equity prices started at reasonable levels. This was true at the beginning of the Roaring Twenties, the Post WW II Period, and the Reagan Era. It is as if markets, recognizing prior inefficiencies ‘reset’ and start over. However, for the current market to ‘reset’, it will be necessary for equity prices to fall considerably, which will have dire consequences. May 20th, 2010 | Print Article | Email Article | Topics: Andrew Carnegie, Baby Boomers, Barack Obama, Charles Merrill, common stock legend, demographics, dividends, Dow Jones, Economic Recovery, efficient market hypothesis, Franklin Roosevelt, GAO, General Motors, George Eastman, gold standard, Great Depression, intrinsic value, Irving Fisher, J. P. Morgan, James de Rothschild, Jimmy Carter, John D. Rockefeller, market manipulation, pension plans, price earnings ratios, profits, Richard Nixon, Ronald Reagan, S&P 500, socialism, Stock Buybacks, sub-prime mortgages, trade unions, US SEC, Vietnam | Category: New Economic Theory, featured | Leave a comment | Short urlCommonsense Economics: By John Schroy, on May 16th, 2010 | 3 comments  Eventually, at some point, without an efficient market, common stocks become mere baseball cards. Sooner or later, some Baby Boomer, pressed to pay his bills in retirement, will find that one can’t live off the dividends of common stock and that when everyone is trying to cash out their holdings at the same time, market prices plunge to levels that seemed inconceivable for generations. But it will simply be the cost of allowing an inefficient market to flourish for so long. This article discusses the concept of inefficient markets and the practical consequences. May 16th, 2010 | Print Article | Email Article | Topics: Baby Boomers, Benjamin Graham, Common Stock, dividends, Dow Jones, efficient market hypothesis, Eugene Fama, executive stock options, Financial Analysts Journal, Financial Economics, index funds, Inflation, intrinsic value, liquidity, mark-to-market, Morningstar, Nobel prize in economics, price earnings ratios, Real Estate, S&P 500, SEC Rule 10b-18, Stock Buybacks, Technical Analysis, US SEC | Category: New Economic Theory, featured | 3 comments | Short urlFeatured articles on inside pages
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