The
fluctuations of the stock market are largely unpredictable. Indeed, there is a theory called the
efficient market hypothesis which says that they are
completely unpredictable, because all publicly-available information about
future stock prices is automatically incorporated into the current price by the functioning of
the market.
Personally I consider the efficient market hypothesis far too
strong. Human beings are not completely rational, and we often engage in behaviors like
following the herd or being overconfident that can lead to systematic distortions in the prices
of stocks and other assets. Thus, stock prices are not completely
incorporating all available information, and it is possible for investors with very detailed
knowledge and sophisticated forecasting methods to predict the stock market at least with
accuracy better than chance. (An example of someone doing this successfully is
Warren...
No comments:
Post a Comment