alt Hacker News the hypothesis maintains that
stock prices reflect all relevant
information about the stock
What if it takes 12 months of hard thinking to draw the right conclusion from the information? Are there many investors who go to such lengths? Are they all thinking at the same speed? And if not, what does that tell us about the EMH?
Google released DeepDream in 2015. My feeling is that with enough thinking, one could have predicted where image generation is going in the next decade and that language generation would go a similar route. And that this will lead to a high demand in Nvidia's GPUs. But that thinking would not be instantly. It would take months or years.
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> What if it takes 12 months of hard thinking to draw the right conclusion from the information? Are there many investors who go to such lengths?
It's not required to be all of them. Suppose that it indeed isn't, but the ones who do that work for investment funds who control significant pools of money.
Now the investors in two or three of those places do the research and conclude that some company is about to start doing well and their share price is currently $50 but is about to be $150. So they start buying it, and keep buying it until it gets up near $150. Which happens pretty quickly because they control enough money to use up all of the short-term liquidity at the lower prices and the majority of the shares are held by people who aren't even paying attention and therefore don't try to sell when the price starts going up. Once the price gets to that point they don't buy any more because it's no longer selling at a discount.
Then the company actually starts doing well to the point that everyone can see it but the price hardly moves because it was already priced in.
> What if it takes 12 months of hard thinking to draw the right conclusion from the information?
I think the idea behind EMH is that this probability is priced in, at any point in time. It just so happens that longer term probabilities are discounted as more volatile, thus impacting less the present price.
In systems thinking there’s the concept of “stocks” or “buffers”. Meaning that change of inputs into the systems first affect stocks/buffers before the outputs.
you're wrong about the mechanism - it's not that the thinking is the cause of the efficiency. It's the large number of participants all doing their own brand of thinking, and that the _average_ of all of those approaches the "correct" price. It requires the large number of participants because for such an average to approach "correct", errors within each participant's guesses cancel each other out.
And the immediacy comes from the large amount and speed of the transactions. It does not require that these participants sus out the correct value from information - they could've actually just guessed.
> What if it takes 12 months of hard thinking to draw the right conclusion from the information? Are there many investors who go to such lengths? Are they all thinking at the same speed? And if not, what does that tell us about the EMH?
To paraphrase William Gibson: the information may be available, but it is not evenly distributed.
It's why (e.g.) hedge funds use satellites to get information on company activities:
* https://newsroom.haas.berkeley.edu/how-hedge-funds-use-satel...
* https://internationalbanker.com/brokerage/how-satellite-imag...
It's takes resources (time, money, etc) to gain an advantage, and it's only do it because they think some extra bits of information will allow them to know more than The Market in general / their counterparties to get a better conditions on a trade or options.
Why do you think insider trading became illegal: some folks have that information before others simply because of their job/position. There was a case of someone knowing something early, because information can only travel as fast of the speed of light, which some "beat":
> Last Wednesday, the Federal Reserve announced it would not be tapering its bond buying program at 2 p.m. ET. The news takes seven milliseconds — about the speed of light — to reach Chicago. But before the seven milliseconds was up, a few huge orders based on the Fed's decision were placed on Chicago exchanges.
* https://www.npr.org/sections/alltechconsidered/2013/09/24/22...
* https://www.motherjones.com/kevin-drum/2013/11/final-frontie...
EMH is saying people that if people think they can make money, they will spend the resources to get an information edge to accurate price what a commodity is 'worth', either higher or lower. If you better know what it 'should' be, then you can devise a trading strategy (buy/sell/short/long) to get one over your counterparty.
Information that requires 12 months to figure out isn't information that's available now.
Say you want to know the 400 trillionth digit of pi. We have all the information needed right now to know how to compute it. But you don't know what the actual digit is yet. The information isn't available and won't be until you set your supercomputer on it for some number of months. Having the information necessary to derive other information isn't the same as having the derived information.
If there is some information about a future stock price that could theoretically be computed after months of work, that's still not information that currently exists, and therefore is not currently reflected in the price. If no investors go to the lengths to get that information, it'll continue to not affect the stock price. It's not violating EMH because it's not information that exists yet.