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Gold/Mining/Energy : PYNG Technologies -- Ignore unavailable to you. Want to Upgrade?

To: Jack Rayfield who wrote (3383)	3/8/1999 7:36:00 PM
From: AriKirA	Read Replies (3) \| Respond to of 8117

Well, after Friday's sell-off and today's trading (Midland selling 10,000 shares), it might be an opportune time to talk about the Efficient Market Hypothesis. What is the Efficient Market Hypothesis? The Efficient Market Hypothesis is a modern financial theory to the effect that securities are normally in equilibrium and are fairly priced. In other words, the hypothesis recognizes the fact that capital markets are efficient in that they allocate scarce resources among alternative usages in a way that maximizes the total utility of said resources. For the markets to be considered efficient, three major conditions must be fulfilled. First of all, most traders must be rational in that they must know both their goals and the proper ways to reach them. In addition thereto, the transaction costs must be as small as possible in order to allow an arbitrage . While these two conditions are shared by both the theoretical economics and finance, the third one is a financial specialty: the markets must acquire new information, evaluate them and use them in the above-mentioned arbitrage. The faster the markets incorporate new information into the price of any particular equity, the more efficient they will be considered. Of course there are different types of information: some of them are publicly known and others are not. The publicly known information can be divided further into two categories: the first category includes information about old prices, old volumes, old patterns and so on (information such as the ones used by individuals practicing TA); the second category includes new published fundamental information (information such as the ones provided by PR's). The non-public information can be also divided into two closer categories: the first category consists of information that simply isn't published, but that can be obtained by research (information such as the ones obtained by calling MJ or any third parties involved with the company). The second category consists of insider information that can't be legally obtained by the general public. To these four kinds of information correspond three forms of market efficiencies. The weak form of efficiency says that all public information about the old prices, volumes and so on are included in the price of a security. The middle form of efficiency says that all public information (thus, including non published information that can be obtained by research) is included in the securities price. The strong form of efficiency includes all information (public or not)in the securities price. While the strong form of the Efficient Market Hypothesis is thought to be unrealistic, the weak and the middle form are widely accepted for developed western capital markets. The Efficient Market Hypothesis has a lot of interesting consequences. The most important one is to the effect that price movements cannot be predicted (even if some investors think that by using Fibonacci fans and Trans-set or Ghost lines they could predict certain channels between which the price will trade in the future). Now having said this, if the market is efficient to some kind of information then all the information of that kind are included in the current price. Only new information can affect the price. But new information appears randomly--so its appearance can't be predicted unless .... Yup, unless the individual has some sort of inside information. Therefore, the only way to beat the market (sustain an above average profit margin) is to trade on insider information. Now the question is, do we apply the strong form or the middle form of the EMH to Pyng. In other words, does the securities price at these levels reflect some unknown information or is it just a question of circumstances. Since it is an overall 'market' theory - PYT may or may not conform to the theory. At one extreme (as mentioned above), its unrealistic to think that both public and non-public information is reflected in PYT's price at all times - at the other extreme (weak form of the hypothesis), its unrealistic to think that only public information is reflected in PYT's price at all times. Which theory do YOU think applies in the case at hand? Any comments are more than welcome! Additionnal information could be found at: econ.muni.cz AK