{"id":12221,"date":"2010-08-19T17:21:42","date_gmt":"2010-08-19T21:21:42","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=12221"},"modified":"2010-08-19T17:21:42","modified_gmt":"2010-08-19T21:21:42","slug":"efficient-market-hypothesis-r-i-p","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2010\/08\/19\/efficient-market-hypothesis-r-i-p\/","title":{"rendered":"Efficient Market Hypothesis: R.I.P."},"content":{"rendered":"

By Elliott Wave International<\/span><\/h3>\n

Of all the belief systems of Wall Street, few can claim the devoted following of the Efficient Market Hypothesis, the idea that stock prices adhere to the same laws of supply-and-demand that govern retail products. Once coined the theoretical “Parthenon” of economics, this notion has consistently endured the test of time —– until now<\/em><\/strong>. Academics and advisors across the globe are currently exposing crack after crack in the “Efficient” model so deep as to bring the entire theory crashing to the ground.<\/p>\n

“The EMH is not only dead,” <\/em>writes a July 29, 2010 news source. “It’s really, most sincerely dead.” <\/em>(Minyanville)<\/p>\n

As to what caused the theory’s collapse — one recent business journal offers this insight:<\/p>\n

“Financial markets do not operate the same way as those for other goods and services. When the price of a television set or software package goes up, demand for it generally falls. When the prices of a financial asset rises, demand generally rises.” <\/em>(The Economist)<\/p><\/blockquote>\n

Here’s the thing. SIX<\/span><\/strong> years ago, Elliott Wave International president Bob Prechter pronounced the exact same finding in his April 2004 Elliott Wave Theorist<\/em><\/a><\/span><\/strong>. <\/em>(Read that\u00a0full-length publication today, absolutely free by clicking on the\u00a0hyperlink) <\/em>In that groundbreaking report, Bob presented the compelling picture below that shows how investors increase their percentage of stock holdings as prices rise, and decrease them as prices fall:<\/p>\n

\"\"<\/strong><\/p>\n

The next question is why? <\/em>Answer: Motivation: i.e. the purchase of goods and services is about need; while the purchase of stocks is about desire. Here, Bob Prechter’s 2004 Theorist<\/a> takes the rein:<\/p>\n

“The fact is that everyday in finance, investors are uncertain. So they look to the herd for guidance. Because herds are ruled by the majority — financial market trends are based on little more than the shared mood of investors — how they feel — which is the province of the emotional areas of the brain (limbic system), not the rational ones (neocortex)… Buyers, in a rising market appear unconsciously to think, ‘The herd must know where the food is. Run with the herd and you will prosper.’ Sellers in a falling market appear to unconsciously think, ‘The herd must know that there’s a lion racing toward us. Run with the herd or you will die.'”<\/em><\/p><\/blockquote>\n

Prechter and contributor Wayne Parker then expanded on his landmark observation in the 2007 Journal of Behavioral Finance.<\/a><\/strong> (Also available, absolutely free by clicking on the\u00a0hyperlink)<\/p>\n

In the end, it’s not enough to just tear down the long-standing EMH. One must build another, more accurate model up in its place. And in the 2004 Theorist<\/a>, Bob Prechter does just that with the Wave Principle<\/strong>, which reconciles the technical and psychological sides of stock market behavior into this key point: Herding impulses, while not rational, are also NOT random. They unfold in clear and calculable wave patterns as reflected in the price action of financial markets.<\/p>\n

As the mainstream media continues to jump on board Prechter’s Financial\/Economic Dichotomy Theory, you can read both of Prechter’s original writings. Enjoy your complimentary access to the 2004 April 2004 Elliott Wave Theorist<\/em> and the <\/strong>2007 Journal of Behavioral Finance. <\/strong><\/p>\n

Read some of the latest nuggets directly from Robert Prechter’s desk — FREE. Click here to download a free report packed with recent quotes from Prechter’s Elliott Wave Theorist<\/em>.<\/a><\/span><\/strong><\/p><\/blockquote>\n

\n

This article was syndicated by Elliott Wave International and was originally published under the headline Efficient Market Hypothesis: R.I.P.<\/strong><\/a>. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.<\/em><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Of all the belief systems of Wall Street, few can claim the devoted following of the Efficient Market Hypothesis, the idea that stock prices adhere to the same laws of supply-and-demand that govern retail products…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-12221","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/12221","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=12221"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/12221\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=12221"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=12221"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=12221"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}