But how does that square with the existence of short-ers and the subsequent squeezers?willthrill81 wrote: ↑Thu Mar 26, 2020 1:52 pmDue to loss aversion, I would assume that ceterus paribus (e.g. return expectations are unchanged), greater uncertainty would lead to lower prices.Lee_WSP wrote: ↑Thu Mar 26, 2020 1:45 pmCan you explain to me how it prices in uncertainty about the price? Serious question. Although, if there's no good answer, I will remain convinced that EMH cannot explain today's market prices.magicrat wrote: ↑Thu Mar 26, 2020 1:30 pmA well-priced market reflects uncertainty and a range of potential outcomes. The range of potential outcomes is much, much higher than usual, so of course markets will be more volatile, and will move up or down substantially when real outcomes replace the very wide range of potential outcomes.pacodelostigres wrote: ↑Thu Mar 26, 2020 1:05 pmI generally believe in EMH, but I disagree with you here on everything but your last point. This is not a set of circumstances that the models are well built to address, and I think that the novelty of the situation is both driving volatility and quite a bit of mispricing. Even if you believe that the models can handle this, what inputs do you use for earnings, or anything else for that matter? I've worked in FP&A for many years and I'd have no idea how to even do a corporate budget in this scenario, much less any kind of valid equity analysis.
VIX sitting at 60 is a pretty good indicator that the markets are struggling to correctly price anything.
If the vast majority of the market prices in uncertainty and is unwilling to bid higher than say 2200, that allows for a few actors to bid prices higher by buying up the much fewer sell orders.