Asset Prices Consistently Violate Efficient Market Hypothesis

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Lyall Tay­lor points out two rea­sons why as­set prices con­sis­tently vi­o­late the EMH:

(1) Liquidity fly­wheels make the mar­ket in­effi­cient from a long-term value per­spec­tive, be­cause shorter-term mo­men­tum dy­nam­ics ex­ist for struc­tural rea­sons de­cou­pled from un­der­ly­ing as­set values

(2) The cost of cap­i­tal in var­i­ous as­sets is de­ter­mined by a coarse-grained buck­et­ing into leaky ab­strac­tions like “listed equities”, and there aren’t many par­ti­ci­pants ca­pa­ble of ar­bi­trag­ing when the speci­fics of an as­set defy their cat­e­gory bucket, due to struc­tural forces of short time hori­zons and fund man­age­ment prin­ci­pal-agent problems