Vol. 334 Is the market efficient?

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Serialized “Trading Philosophy”……8

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The fish with the longest scientific name is said to be Mitsukuri E-naga Chōchin Ankō (the long-named deep-sea anglerfish).

When written in kanji, it is “Minasaku-hara-chōchin Ankō,” which gives me a headache...

Today, I will explain the seven-kanji term “Efficient Market Hypothesis.”

What does it mean for the market to be efficient—.

In simple terms, “all information is reflected in the current price.”

After all, it is a hypothesis, and no one has proven it.

Think of it as one argument.

That is the gist, but let me explain a bit more carefully.

For example, we might analyze and consider buying because “this company is〇〇, so the current stock price is clearly cheap,” but if the market is efficient, such an approach would have no edge or advantage.

We believe that all information knowable is already woven into the current price—100%.

Complicating matters, the Efficient Market Hypothesis has three versions—“Weak,” “Semi-Strong,” and “Strong”—and the strongest “Strong” version claims that even hidden insider information is reflected.

Is that true? Well, it’s just one way of thinking, one argument, one theory.

Setting aside the details, the Efficient Market Hypothesis claims that

it is impossible to determine overpricing or underpricing through diligent analysis

active management that selects which stocks to invest in is not feasible

This is the assertion.