Hi Raul I did not think you nor Jose asserted that EMH holds.
I was trying to understand EMH—I must have read the paper to quickly because I took the author at his word when he said: > I prove that if markets are weak-form efficient, meaning current prices fully > reflect all information available in past prices, then P = NP, meaning every > computational problem whose solution can be verified in polynomial time can > also be solved in polynomial time. > This statement baffled me because N=NP is an unproven theorem—one of the millennium problems with a reward of $1 million for proving or disproving. Nowhere in the paper does he show any equivalence between N=NP and efficient markets. I agreed with Devon when he said this was nonsense. The author goes on to say: > I also prove the converse by showing how we can “program” the market to solve > NP-complete problems. Since P probably does not equal NP, markets are > probably not efficient. Specifically, markets become increasingly inefficient > as the time series lengthens or becomes more frequent. An illustration by way > of partitioning the excess returns to momentum strategies based on data > availability confirms this prediction. > The author seems unaware that in mathematics statements cannot be both True and False (Even outside mathematics unless I guess you get Kelly Ann Conway working for you.) Jose makes a good point though—if the author was trying to disprove efficient market hypothesis—then proving the weakest form to be false implies all forms are false. The author speaks of programming the market to solve NP-complete problems. This is also nonsense because the market is busy doing other things and would not be controlled by some sort of program on demand. Perhaps there is some kind of simulator that could be programmed in the sense of an analogue computer to solve problems but basically as stated by the author it is nonsense. He follows this with a reasonable statement about the possibility of earning excess returns with momentum strategies. Since the EMH theorem was not his theorem I turned to Fama who originally proposed the theorem. In mathematics, one way to disprove a theorem is to show that is leads to a contradiction—thus the examples I mentioned that contradict EMH. > > Donna Y [email protected] > On Aug 22, 2019, at 10:37 AM, Raul Miller <[email protected]> wrote: > > On Wed, Aug 21, 2019 at 7:44 PM Jose Mario Quintana > <[email protected]> wrote: >> I do not recall asserting that any particular form of the EMH holds. Do >> you? > > As you pointed out today: > >> Recall, the information related to the three forms is nested: >> >> Weak - Past Prices (and Volumes) < Semi-Strong - All public Information >> < Strong - All Public and Private Information > > So, as I understand it: if the weak form EMH is invalid, all forms of > the EMH are invalid. > > That said, you are correct: I do not recall you ever saying that you > believe that any form of the EMH is valid. > > Thanks, > > -- > Raul > ---------------------------------------------------------------------- > For information about J forums see http://www.jsoftware.com/forums.htm ---------------------------------------------------------------------- For information about J forums see http://www.jsoftware.com/forums.htm
