Efficient-market theory declared mechanical selling cannot move prices.

Evidence

Sales by a portfolio insurer as prices fell were an “informationless,” mechanical response to changing prices, so in an efficient market they should not affect stock prices, which should be determined by the tradeoff of risk and expected return discussed in chapter 2. That prices were governed by that tradeoff was the reasoning of Myron Scholes’s Ph.D. thesis, but it was not peculiar to Scholes; it was a fundamental tenet of finance theory. — Donald MacKenzie, An Engine, Not a Camera, 808

Categorization

• XREF: The claim that ‘informationless’ selling cannot affect prices is exactly the tenet the 1987 crash falsified — this is the performativity thesis reversing into ‘counterperformativity’ (MacKenzie’s own term), connecting to chapter on the crash. — connects to: Efficient-market theorists held that conventional security analysis adds no net value — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 351; Black called markets efficient only within a factor of two of value. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 604; Market actions based on efficient-market models can create anomalies those models cannot explain — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1166 (+5 more)

Broader Connections

• Market actions based on efficient-market models can create anomalies those models cannot explain #complicates (0.88) — Donald MacKenzie, An Engine, Not a Camera, 1166
• Efficient-market theory still assumed securities had intrinsic value rooted in corporate fundamentals #expands (0.82) — Donald MacKenzie, An Engine, Not a Camera, 342
• Markets can be performatively constructed by agents who are not atomistic homo economicus #complicates (0.82) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 25
• Efficient-market theory holds stocks are interchangeable rights to income streams #expands (0.78) — Donald MacKenzie, An Engine, Not a Camera, 460
• Efficient-markets and random-walk theory legitimized options against their scandalous reputation. #expands (0.75) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 62
• Unrealistic assumptions do not count as legitimate criticisms in financial economics #corroborates (0.72) — Donald MacKenzie, An Engine, Not a Camera, 63