tag:blogger.com,1999:blog-4039434.post8440384813408505267..comments2024-02-26T06:46:53.171-05:00Comments on Rajiv Sethi: Trading Strategies and Market EfficiencyRajivhttp://www.blogger.com/profile/13667685126282705505noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-4039434.post-81938872163742565022010-04-25T17:50:37.778-04:002010-04-25T17:50:37.778-04:00Byrne, you're right about the liquidity effect...Byrne, you're right about the liquidity effect but it works both ways - orders based on fundamental analysis also lower bid/ask spreads faced by other speculators.<br /><br />Justin, if you type "efficient markets" (with quotation marks) in the sidebar search box you'll see a few other related posts and links.Rajivhttps://www.blogger.com/profile/13667685126282705505noreply@blogger.comtag:blogger.com,1999:blog-4039434.post-36005547602654196522010-04-25T15:33:50.281-04:002010-04-25T15:33:50.281-04:00This comment has been removed by a blog administrator.Unknownhttps://www.blogger.com/profile/15771195351257714422noreply@blogger.comtag:blogger.com,1999:blog-4039434.post-42034341573006183312010-04-24T13:41:24.634-04:002010-04-24T13:41:24.634-04:00On the other hand, in a market dominated by techni...<i>On the other hand, in a market dominated by technical analysis, changes in prices and other market data will be less reliable indicators of changes in information regarding underlying asset values.</i><br /><br />This begs the question: how much information is transmitted by traders making non-technical decisions? Also, in a market dominated by technical traders, fundamental analysis is more profitable since spreads are lower and liquidity is higher. If XYZ Co. trades at $20 and you think it's worth $25, the returns from this trade will rise significantly if the bid/ask spread drops from $1 to $.05.<br /><br />Your model is interesting, but I wonder what happens when you add macro traders into the mix. Their relationship to fundamental traders is analogous to the relationship between fundamental traders and technicians: when fundamental traders trade, they make the market incrementally more efficient, but they are likely to miss the huge economic changes that invalidate their analysis. From that perspective, 2007 was the peak of a 'value bubble', in which people were too confident in discounted cash flows and asset values, and insufficiently careful about global capital flows and natural resource prices.Byrnehttps://www.blogger.com/profile/01811615997458838025noreply@blogger.com