http://www.theforextradingblog.com/forex-hedging/isnt-arbitrage-slightly-underrated-by-emh Keep you up to date on Forex Trading Wed, 08 Feb 2012 08:28:59 +0000 hourly 1 http://wordpress.org/?v=3.0.1 http://www.theforextradingblog.com/forex-hedging/isnt-arbitrage-slightly-underrated-by-emh#comment-7656 Crookedlettaman Tue, 17 Nov 2009 09:11:59 +0000 http://www.theforextradingblog.com/forex-hedging/isnt-arbitrage-slightly-underrated-by-emh#comment-7656 I like your question. I trade in the financial markets and it would appear under the strong version of the EMH arbitrage isn't possible. However, I don't believe economists look to EMH as a perfect model but merely an approximation. Much like the rational expectations hypothesis only partially explains the slope of the yield curve; one needs to factor in risk premium to derive the complete explanation. Similarly EMH partially explains the price action we observe in markets. Arbitrage assists in the efficiency of markets by facilitating the flow of capital into its most resourceful uses.<br><b>References : </b><br> I like your question. I trade in the financial markets and it would appear under the strong version of the EMH arbitrage isn’t possible. However, I don’t believe economists look to EMH as a perfect model but merely an approximation. Much like the rational expectations hypothesis only partially explains the slope of the yield curve; one needs to factor in risk premium to derive the complete explanation. Similarly EMH partially explains the price action we observe in markets. Arbitrage assists in the efficiency of markets by facilitating the flow of capital into its most resourceful uses.
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