- best prediction of tomorrow’s price is today’s price. - price change is unpredictable (random). (3) Explaining successful speculation - Success for those who obtain new information first. - could be an insider, could be the first realize something. - can profit from this new information - Chance /luck: another possible explanation of success. - Apparent success may reflect risk taking (not so successful if adjusted for risk) or fraud (Bernie Madoff) - Generally: future price movements are unpredictable and speculation will not be successful. (4) Patterns in past prices or yields will not be useful in predicting current prices or yields. - analysis” will be wrong: history is already ‘Technical built into current prices. (5) EMH is critical of analysis”: “Fundamental - current knowledge of fundamentals is already built into prices.
- best prediction of tomorrow’s price is today’s price. - price change is unpredictable (random). (3) Explaining successful speculation - Success for those who obtain new information first. - could be an insider, could be the first realize something. - can profit from this new information - Chance /luck: another possible explanation of success. - Apparent success may reflect risk taking (not so successful if adjusted for risk) or fraud (Bernie Madoff) - Generally: future price movements are unpredictable and speculation will not be successful. (4) Patterns in past prices or yields will not be useful in predicting current prices or yields. - ‘Technical analysis” will be wrong: history is already built into current prices. (5) EMH is critical of “Fundamental analysis”: - current knowledge of fundamentals is already built into prices.
money_fall17h.docx