Arnold Kling has provoked an interesting set of comments on EMH (Efficient Market Hypothesis). Whatever you think about EMH, I won’t be able to convince you otherwise. However, EMH doesn’t mean what you think it means, at least not exactly. With stocks and bonds, market prices are set by trades conducted by people who manage other people’s money. Very few of us run our own books. The market price does not reflect the judgement of owners – it mostly reflects the judgement of their agents. This has subtle implications on the theory of efficient markets. If markets are efficient, it is only from the perspective of agents.


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