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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: Stefan who wrote (45380)	6/7/1999 3:32:00 PM
From: BGR	Read Replies (2) \| Respond to of 86076

Stefan, I think that your confusion stems from your lack of understanding of EMH and its different forms. I do believe the market is efficient in a semi-strong sense, which doesn't mean that all market participants are of the same opinion, but that the market reflects the average opinion and that average opinion in the long run (by virtue of having a larger data set) is more acurate than any individual opinion. Also, EMH doesn't rule out the hypothesis that over the short run several segments of the market may show skewed average responses to the same data. In that case, arbitrageours (sp?) step in, eliminate the skewness and achive a uniform average price. The more efficient a market is, the less arbitrage opportunites are possible and faster is the adjustment. For example, if the cash index value is 100, the futures index value is 200 for the next year and the short term interest rate is 5%, either the cash index should rise to 190 (app) or the future index should fall to 105 or they should both adjust to some value in between, say 150 and 157.5 (this is a ver simplistic example). The final result of course depends on bull/bear ratio in the market. In the above example, I may hold a personal opinion that the futures price is more accurate than the cash price and expect the price to result in 190/200 instead of 100/105 or 150/157.5, while still believing in EMH which simply means that this discrepancy will soon be resolved by arbitrage and market sentiment and whatever my opinion is, it will have little effect on the resolution. In that case, I am going to use DCA instead of outright buy and let the market go where it wants to go. Which is what I have been doing for several years now in the face of market rallies and crashes as I had earlier mentioned in the Ask MB thread. Long answer to a short, but interesting, question. Hope this helps. -BGR.