Thanks, great analysis. (I take your point.) How about my paper I started this thread with:
https://news.ycombinator.com/item?id=19722455
Any thoughts?
3 karma · joined April 22, 2019
https://news.ycombinator.com/item?id=19722455
Any thoughts?
My argument was not so much about luck as about speed of analysis. EMH doesn't allow some people to analyze information faster than others. For example if Intel always releases a 450 page earnings at 11 o'clock, and it takes 4 hours for the market to really analyze it because it's written really abstrusely and that's the fastest anyone can read and figure out its meaning, then under the EMH there's no scope for 1 specific trader to read it in 1 hour and perform the analysis faster, before the price has adjusted to the new information. In fact, under the EMH the price has to instantly fully reflect the implication of the information of the report the moment it is released. If two hours in, a famous analyst (Warren Buffett let's say) tweets about it, and that tweet moves the price, under the EMH it must have moved the price because of new information. It can't just be because the famous analyst is smarter and analyzes better and faster than the rest of the market. Not possible.
That doesn't mean that until the tweet the analyst's better-than-market analysis is somehow "private" (rather than public) for 4 hours. there's no new information, it's just that the public price doesn't fully reflect the completed analysis. The market can be a bit dumb.
But how do you know the facts I just gave are true? How do you know the completed analysis can't be factored into the price the instant the report is released? (The price does jump instantly.) Maybe it jumps to the new fully completed analysis price? Maybe everything I wrote is not true and in fact the market is perfectly efficient, and only new information, or stochastic events, change the price? Maybe it fully reflects all public information all the time?
So I showed how to show that analysts can't all work instantly, yes, under a contrived example. The EMH doesn't require that markets only be efficient under conditions that aren't "contrived". But rather, all the time. you can run the experiment and show it if you want. you can literally see the stock market figure it out. They could also figure it our wrong. Maybe early on #117 will spike (so that prices look like this: https://imgur.com/a/C782Fgt ) - it could be for any reason. Maybe a false rumor that it was leaked (a false leak), whatever. But the market gives the rumor just a 10% chance of being true. But regardless of the reason for the spikes, at the end there must be a single spike, in the value of the stock that actually wins. it must be around $1 billion since it'll have that in cash. (It's important that people actually believe this will happen.)
if the paper is flawed, nothing follows from it, there's no reason to spend time on it except to understand its flaws. Then it's just another crank paper, besides and unrelated to mine.
I don't know what will happen exactly between day 1 and day 20, but on day 19 anyone can just try every 20-leter password with the first 19 letters you've published by that date. So if by then you've published p?jbAL;nQpg-37(z(fe already they'll just try
p?jbAL;nQpg-37(z(feA p?jbAL;nQpg-37(z(feB p?jbAL;nQpg-37(z(feC p?jbAL;nQpg-37(z(feD
in winzip. Anyone can just try all of them until they find the one that unlocks it. So on day 19 if it's worth knowing, for sure someone will take a minute or two to try it. Not that hard if there's just 1 missing letter.
So for sure if you tell people it's a 20-letter password and give them 19 letters they will figure it out before you've given them the last letter.
All right, but on day 1 nobody can guess all 20 characters in the password. That's too hard. it's impossible.
So every day you make it easier, but it'll be "broken" sometime between day 1 and day 20, assuming that the insider information doesn't leak in any other way. that means that someone will break it but not on day 1. on some day between day 1 and day 20. The person who analyzes it "best" will have the insider information first, but for sure we don't have to wait until day 20 because by then it's ridiculously easy to analyze.
meanwhile you're making the analysis easier and easier. the person who can do the analysis best will have it first, and this proves that there's no "infinitely great analysis" already being done all the time by public markets. it's a simple demonstration of this fact. I don't think you actually need to do the experiment to now the results. hope this helps.
In 2010 I put online a brief refutation of the EMH, the efficient market hypothesis. Here it is: https://arxiv.org/abs/1011.0423
If I had seen this then, I think I would have followed the directions in the inset box, where the article suggests saying something like: "The reason I succeeded in finding an algorithm for P=NP is that I noticed that... No one else seems to see that this insight is very powerful. It is very useful since it implies ..."
I could have simply written: "Nobody has bothered to test the Efficient Market Hypothesis, but since I have some background in computer science I made an unusual mental connection, and it follows that it doesn't need to be tested. It cannot be true."
(My proof outlined a way to show it has to be false.) I remember my thinking at the time was that I didn't need to explain it at all, just make it correct and brief.
At the time, I didn't want to include anything personal in the paper. Perhaps I should have. It's not a very good paper.