Is the market efficient?

A

athlonmank8

It is not. That's my vote.

Is there ANY proof? I believe I have some.

Nassim Taleb is a genius. But Black Swans happen on PLAUSIBLE events as well. Not just extremely low probability.

The risk:reward profile of the market isn't efficient. It never will be. It's proof the market is in fact inefficient
 
Quote from Bob111:

it is efficient. just not for you and me. it certainly efficient for GS for example.
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I'm confused. Are you saying you can or cannot beat the market.

I'm saying you can. :confused:
 
Most people can't beat a raging bull (late nineties) or a really horrendous bear (fall of '08): these are at the extremes, one of persistent and, to long-time market players, puzzling inefficiency, and the other of brutal efficiency. All most folks can do is ride the wave of the one, and stay out of the way of the other.
In between, you can make money.
 
Not when the market is under periods of severe stress. Most of us have seen markets when initiating order flow (liquidity takers) completely overwhelms the buy or sell bias - it would be difficult to label a market 'efficient' when there are few liquidity providers stepping into the market to provide that balance.
 
There are many different persuasions out there; a spectrum of beliefs result.

The Black Swan is a biological occurance to Taleb; he feels that the statistics he applies to markets are meaningful to him and his ilk.

As we see, people can use his viewpoint to draw conclusions about other market considerations.

Different conclusions may be drawn as well.

A question remains with respect to the Black Swan. Were sufficient variables used to determine the sigma relationship attributed to the Black Swan?

The answer for biology is yes and the answer for Taleb is no.

To consider market Efficiency, would it be wise to employ the variables of the market? Maybe? My view is that it is a requirement just as it is in biology.

What about the Efficiency of the trader? Must that be considered as well?

For me, it turns out that making money efficiently involves the market and the trader. I also feel that when either markets or traders are concerned, using the pertinent variables is part of the opportunity.

Efficiency is a comparison as to what is possible in several ways. The standard is: does the market take in to consideration all information that is present? Does the trader?

For me the proof turned out to be that the expert trader finds no noise nor anomalies in the market. This means that, as the offer unfolds, there is nothing out of the ordinary.

A bastion of the financial industry is finding out how out of the ordinary (in their terms) some market behavior is. The "ordinary" is an invention of neither the markets nor the participants (traders) in terms of the efficiency of this partnership.

I like the way Mark Douglas, creates a niche for his vendor message. His "zone" depends on nine things as he sees it. He vends a "coping system". The mantra includes that the trader expect that anything can or will happen. It must be normal to not be surprixed and Taleb gets surprised and measures surprises.

Getting past being surprised can be done either way: doing Douglas or kmowing what is going on at all times.

People who conclude that markets are efficient must prove there is no noise nor anomalies. How that was done is a good replacement for Douglas's vendor niche.

So, the trader always knows when he does NOT know. Literally, eons of time have built into every trader that he knows WHEN he does NOT know. The trader is very efficient in this regard. He is always being told when he, as a trader, is unqualified to participate.

Expecting that anything can happen is NOT a qualifier for being an efficient trader; it is anything but.

As the biologist says: "this is a tough titty but it has to be sucked."

If you ever get involved with markets, you must make use of the market variables to determine anything. Taleb dropped the ball.
 
The market is nowhere close to efficient.

Academics couldn't figure it out so they postulated a theory of market efficiency. And those that did, quit their tenure promptly and moved to Grand Cayman.

Research a glossary of famous short term traders who compounded a meager stake into a vast fortune. Statistically, that's impossible.

Consider also, the vast majority of volume done on every exchange/instrument (>90%+) is speculative.

That's key, right there.

Market efficiency rests on the sole premise buyers and sellers are motivated by a fundamental desire alone to hold or short an instrument. That every oil buyer intends to take delivery and every short, holds excess production. Yet, >90%+ of futures are CASH SETTLED.

Same with currencies. Calculate the total value of global trade done on a daily basis with a generous assumption made for international capital flows, and that number is a small fraction compared to overall daily volume (4 Trillion).

Speculators drive short term market activity. It's that human element acting to capitalize on other humans that makes the market predictable. Because predictably they get it wrong, time and again. Why does history repeat? Because humans don't learn from mistakes. And speculators are humans...

A traders job is to identify other traders mistakes and inflict maximum pain. The utility from this lends to informative prices. A secondary effect: execution costs are kept tight and markets liquid for investors.
 
Quote from bone:

Not when the market is under periods of severe stress. Most of us have seen markets when initiating order flow (liquidity takers) completely overwhelms the buy or sell bias - it would be difficult to label a market 'efficient' when there are few liquidity providers stepping into the market to provide that balance.
More...

Stress?

What measures the agreement or disagreement of market participants? (This is a rhetorical question).

We all dig humor don't we? In market participation, one can get used to the idea of just who is obligated to do what. Then, with that basic mental adjustment, skill in participation, reaches a marginally acceptable level a little bit past "hope" style trading.

"Hoper's" will always want the opportunity for this and that. They get their pants taken off quite often because of this lack of reality.

The greatest opportunities in the market occur when "protection" and "money management" oriented players are getting taken to the cleaners. Balance?

I particularly like the market rule that entered orders (on the book) can change their character according to market circumstances. Some people actually use such orders to carry out their "hope" programs.

That the minority controls the market, often slips out of sight for some traders who use "hope" for trading.

Well before "hope" is the warchword for the moment, a leading indicator is in ACTION for ALL traders. This is a unmistakeable signal to EVERY trader.

Read the prose of any poster to see this signal embedded in the post of the "trader".
 
Quote from achilles28:

The market is nowhere close to efficient.

Academics couldn't figure it out so they postulated a theory of market efficiency. And those that did, quit their tenure promptly and moved to Grand Cayman.

Research a glossary of famous short term traders who compounded a meager stake into a vast fortune. Statistically, that's impossible.

Consider also, the vast majority of volume done on every exchange/instrument (>90%+) is speculative.

That's key, right there.

Market efficiency rests on the sole premise buyers and sellers are motivated by a fundamental desire alone to hold or short an instrument. That every oil buyer intends to take delivery and every short, holds excess production. Yet, >90%+ of futures are CASH SETTLED.

Same with currencies. Calculate the total value of global trade done on a daily basis with a generous assumption made for international capital flows, and that number is a small fraction compared to overall daily volume (4 Trillion).

Speculators drive short term market activity. It's that human element acting to capitalize on other humans that makes the market predictable. Because predictably they get it wrong, time and again. Why does history repeat? Because humans don't learn from mistakes. And speculators are humans...

A traders job is to identify other traders mistakes and inflict maximum pain. The utility from this lends to informative prices. A secondary effect: execution costs are kept tight and markets liquid for investors.
More...

I read your succinctly stated viewpoint as one that states that winning participants are contuing to take the correct side of the market and that there is complete flexibility to trade as one wishes (meaning with superior skills) at all times. Speculation IS the cool orientation of those extracting the winnings. Sounds like there IS all the information at all times. (EMH hypothesis)
 
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