Efficient-market theory generates the trades that consume its own counterevidence.
Evidence
Since the start of the 1980s, there has thus been a mechanism whereby the identification of anomalies prompts practical action, often by efficient-market theorists or those close to them, which exploits and therefore tends to eliminate those anomalies. Indeed, if that cannot be done if there seems to be no way of exploiting an apparent anomaly there is a sense in which it is not an anomaly, for what the efficient-market hypothesis rules out is not non-random “structure” of any kind, but structure from which excess risk-adjusted profits can be made. — Donald MacKenzie, An Engine, Not a Camera, 451
Categorization
- DEEPTHINKING: This is the heart of the performativity thesis applied to efficient-market theory: the theory’s practical adoption destroys the anomalies that would refute it, making the efficient-market hypothesis self-vindicating through its own institutional embodiment.
- XREF: connects to: Traders used the model’s own arbitrage logic to profit in the market. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 731; Even efficient-market theorists privately acknowledged mispricings existed. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1109; Prices generate as well as transmit information through the market. — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 68 (+2 more)
Broader Connections
- Prices generate as well as transmit information through the market.
#expands(0.85) — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 68 - Economic theory embodied in devices performs and creates its own posited phenomena.
#expands(0.85) — Donald MacKenzie, An Engine, Not a Camera, 1196 - Traders used the model’s own arbitrage logic to profit in the market.
#exemplifies(0.82) — Donald MacKenzie, An Engine, Not a Camera, 731 - Counter-speculations weaponize speculation’s own volatility against it.
#exemplifies(0.80) — Aris Komporozos-Athanasiou, Speculative Communities, 306 - Even efficient-market theorists privately acknowledged mispricings existed.
#corroborates(0.78) — Donald MacKenzie, An Engine, Not a Camera, 1109