what is market inefficiency

[IURII PAVLOV]

Friends, help me make sense of this.

I hear from time to time in interviews about these inefficiencies and how they help to make money. Enlighten me on this issue, please.

How can one see it?

[Sergey Lazarenko]

IURII PAVLOV:

Friends, help me make sense of this.

I hear from time to time in interviews about these inefficiencies and how they help to make money. Enlighten me on this issue, please.

How can one see it?

Yes this is bullshit, people who can't figure out how to make money from the market on speculation have launched such a hypothesis, while those who can have money - the opposite is true. To understand who these people are, go to the ranking of signals, those at the top believe in efficiency, those at the bottom the opposite.

[Renat Akhtyamov]

Market inefficiency is a state of market equilibrium characterised by a lack of Pareto efficiency, i.e. the market situation is not optimal even if the behaviour of economic agents is rational.

PS

In order to achieve Pareto efficiency it is necessary to eliminate any possibility of any additional benefit from the exchange.

[Maxim Romanov]

IURII PAVLOV:

Friends, help me make sense of this.

I hear from time to time in interviews about these inefficiencies and how they help to make money. Enlighten me on this issue, please.

How can one see it?

There are no patterns in an efficient market. A random series will be as efficient as possible, you won't make any money on it (until they figure out how) Any pattern is inefficiency. For example, we found that if the price passed 100 points, then with 90% probability it will pass another 100 points in the same direction. This is inefficiency.

[transcendreamer]

Breaking into the thread... First there was the efficient market hypothesis ( EMH), or more precisely the efficient market hypothesis

Louis de Bachelier first talked about it in 1900.

In short, an efficient market is a market which does not allow you to make money

There are three versions of the hypothesis:

(otherwise we can say it is three versions of friction: simple friction, moderately strong friction and completely frictionless)

• A weak form of EMH: it is impossible to make money using the analysis (current prices already take into account all information about the past ones)
• Semi strong EMH: the analysis does not work and the fundamental analysis does not work either (current prices already take into account all public information, including issuer reports, all forecasts, all plans...)
• a strong form of EMH: you cannot make any money at all, it is better to go to the factory (you can only make money with insider information, non-public information)

but in practice, there is always a difference between market and fair value- this is inefficiency

All traders and other capitalists are busy looking for this difference

What follows is the stream of consciousness of the anonymous commentator:

the very nature of profitable speculative operations implies that there is a temporary difference that is exploited by the trader and this can be the spread between assets of the same group or profit is formed due to almost random fluctuations relative to the current fair value which cannot be directly measured, but it is implied anyway and in the most basic case it can be presented as a gap between the price spread and the price muving of some period (although FV surely does not have to coincide with some muving, this is just a suggestion

some people might object at once that there is trend trading, when not expected returns but long rises or buying investment assets in general. e.g. buying good issuers damaged by sanctions. But even in these examples there is a difference between current value and fair value: in the case of sanctions, the fair value of a good issuer does not change much but only its current price falls due to temporary panic. this creates good profit potential (price and FV difference) and in the case of trend trading and long term investments p

similar differences (inefficiencies) can easily be found in all companies, companies, factories, mines ... when signing contracts, the seller tries to overestimate the contract price a little, the buyer tries to underestimate the contract price relative to a fair (as they think) price

[Alexander_K]

transcendreamer:

but in practice there is always a difference between the market price and the fair value of the asset(fair value) - this is inefficiency

I agree. Finding the truefair value and trading the delta between it and the current price gives Something resembling the Grail.

[Renat Akhtyamov]

again

PS

In order to achieve Pareto efficiency, any possibility of any additional benefit from the exchange must be eliminated.

===

Here it is worth adding - by the market, i.e. if fully and slightly paraphrased, then:

In order to achieve efficiency, it is necessary to eliminate any opportunity for the market to derive any benefit from the exchange.

[Evgeny Belyaev]

Renat Akhtyamov:

again

PS

To achieve Pareto efficiency

Is it stuck or what?

[Renat Akhtyamov]

Evgeny Belyaev:

Are you stuck or something?

Are you waiting for a grail?

It won't be shown, ever.

Calm down.

[Evgeny Belyaev]

Renat Akhtyamov:

Are you waiting?

Not waiting, I don't need it, keep it.

So what's up with Paretto and where's the link with efficient / inefficient?

You should at least read the wikipedia before talking nonsense.

[Aleksey Nikolayev]

Obviously, inefficiency is the absence or lack of efficiency) Accordingly, it is necessary to understand what kind of efficiency is meant. It is a very popular term among economists and has a huge number of meanings. Generally, efficiency means the existence of an equilibrium state and its sustainability, but in mathematical form it usually looks very complicated.

In our case a variant of "financial market efficiency" is used, from which the sub-form "information efficiency of financial markets " stands out. It means that no information will allow any market participant to change the equilibrium in his favour. Traders naturally do not believe in this efficiency and try to find some information in order to profit from the disequilibrium of real markets.