Theory or Practice

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Serialized Series “Trading Philosophy”……9

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In a nighttime club, when you say, “May I order a fruit platter?” it means I’ll add a reasonable price, please be generous, thank you.

It seems irrational, but if you say so, some may say it’s not stylish or cool… what’s your correct answer?

The previously discussed “Efficient Market Hypothesis” assumes that the people participating in the market are extremely rational. In response, there is the counterargument that “no, people are not those rational decision-makers.”

Psyc hology or sociology theories emerge, and terms like “behavioral economics” or “behavioral finance” come into contact with ideas.

From this point, thinking becomes tedious.

Since many elements overlap in each field, one cannot understand without pursuing it academically, or perhaps one cannot even maintain interest.

Since this is a practical discourse, I’ll summarize very roughly.

Because everyone acts rationally, the market prices “reflect all information,” which is the Efficient Market Hypothesis.

But it is only a hypothesis.

The counterarguments to that hypothesis are as follows.

“How do you explain extreme rises like bubbles?”

Indeed, that’s true.

And, since it’s not easy to understand, I try to “search for the right answer” …

In 2013, the Nobel Prize in Economics was awarded, reportedly to both Eugene Fama, who has long advocated the Efficient Market Hypothesis, and to the critic of it, behavioral finance proponent Robert Shiller, so the conclusion seems to be that either is fine. Huh?

However, that would cause problems in practical trading.

Next time, I will introduce some practical personal views.