The uninformed momentum traders have to undershoot the true price on average for the strategy to be profitable. I don’t know how excess volatility is defined, but shouldn’t the market’s underreaction when the credit constraints bind even out the overreaction when the momentum traders overshoot?
Copying a comment someone posted in the Manifold discord:
> “momentum trading causes volatility” is somewhat undermined by there being no predictable momentum in mature/efficient markets, yet there is volatility (more volatility than new information justifies as shiller shows) right? under this thesis i would expect there to be more momentum effects in bitcoin than in SPY yet there are ~none in either more broadly volatility is consistent with EMH but momentum isn’t
The uninformed momentum traders have to undershoot the true price on average for the strategy to be profitable. I don’t know how excess volatility is defined, but shouldn’t the market’s underreaction when the credit constraints bind even out the overreaction when the momentum traders overshoot?
Copying a comment someone posted in the Manifold discord:
> “momentum trading causes volatility” is somewhat undermined by there being no predictable momentum in mature/efficient markets, yet there is volatility (more volatility than new information justifies as shiller shows) right? under this thesis i would expect there to be more momentum effects in bitcoin than in SPY yet there are ~none in either more broadly volatility is consistent with EMH but momentum isn’t
You mean the Manifold Markets bot server?
No, the normal one. I didn't know there's a server specifically for Manifold bots, do you have a link?
ChatGPT will tell you what to read. There’s a famous paper on “arbitrage” which has a related idea, I think
Brilliant