The Efficient Markets Hypothesis

Something that has not been discussed in the articles so far is something that is called the efficient markets hypothesis.

This is quite interesting and this is the background:

Observers and analysys looking at exchange rate movements for major currencies think that the movements follow a random pattern.

This means something specific - that what happens today has no correlation to what happened the day before, and by extension, the following day will have no basis on what happened today.

Now this means that the description of exchange rate movements, mathematically speaking, is algorithmically uncompressible - there is no mathematical formula that can be used to describe or generate the line from some given inputs. This has the profound consequence of meaning that price movements actually can't be worked out or predicted from historical data.

Based on this, these analysts stated that it was therefore reasonable to assume that the prices were fair based on the information out there in the market at the time - market conditions.

What is known for sure is that prices are affected by any new information that comes into the market. And this explains why prices are unpredictable - as to be new information it must be previously unknown!

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