Quote:
Originally Posted by Cowboy89
Yes. Efficient Market Hypothesis assumes that all possible public information about a stock or asset is taken into account and priced into the asset at any given time and that all purchasers/sellers are perfectly rational and understand the fundamentals of the asset.
Bubbles occur when people buy for no other good reason than 'this asset has been going up' and the mass effect of all those people diving in for that very reason creates a positive feedback cycle that can go on basically as long as buyers have capacity to buy more.
The opposite can happen in crashes, where people sell , just out of fear it will go down more.
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Yeah, I know people who make more money dealing in the psychology of other people's actions on a given stock than in the actual fundamentals of the company they are trading in. To them, it doesn't matter what the company is doing, what matters is what other people are thinking. Seriously weakens the idea of the perfectly efficient market.