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Charles Rowley on the EMH

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Those who find fault with the EMH, and suggest that profit opportunities are available for exploitation, should be subjected to the empirical test. Are they billionaires or are they not? Yes, Warren Buffet passes that critical test. Others who put their faith in Buffet typically do not fare quite so well. Many others lose their shirts on their market gambles. Talk is cheap, and for the most part should be downplayed for what it is. Actual market success is a better guide; and remember that we define efficiency as a long-term concept, rendering transient short-term market successes less relevant for EMH.

Readers should be alert to the fact that many of those who criticize EMH also criticize free markets more generally. By instinct, they are interventionist, by nature they are paternalistic (albeit with other people’s wealth). In essence, they tend to be advocates of Lange-Lerner, advocating the substitution of socialist calculation in place of free market values. They believe that a central planning agency (in the United States read the Federal Reserve Board and/or the Treasury Department, and/or the FDIC) is able to determine stock prices more efficiently than the free market; that such a central planning agency should oversee the stock market with detailed financial regulations, in order to head off unjustified market movements. Well, we know what such central planning did to the economies of the USSR and its Evil Empire, do we not, Dear Readers? We know, pretty much, what is happening in Venezuela and Bolivia, to say nothing of Cuba and North Korea; is that not so?

Read the whole thing.

Written by Sinclair Davidson

February 25th, 2010 at 7:47 am

Posted in Uncategorized

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3 Responses to 'Charles Rowley on the EMH'

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  1. what fatuous rubbish.

    SuperMac’s remarks on why Asutralia fared batter than the Us was to the effect of we do trust markets as much as they do.

    Regulations in both Canada and here were much better than the States.

    Credit departments appear to have more power as well in major banks.

    Butterfield, Bloomfield & Bishop

    25 Feb 10 at 11:40 am

  2. Homer you dummy, our regulations do not involve anyone picking market inefficiencies and therefore are not evidence for or against the EMH. You can believe that the EMH is a valid limit on the form of regulation while still designing regulations that limit the potential for financial collapses. I believe Stevens is on record saying that we have been lucky that our big banks did not get into the dangerous markets.

    Pedro

    25 Feb 10 at 2:22 pm

  3. err no. The RBA came down hard when certain banks began to offer loans that were 100% LTV.

    Of course you need better regulations if you have larger banks dominating the sector.

    Butterfield, Bloomfield & Bishop

    25 Feb 10 at 2:58 pm

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