Efficient Markets? Part II

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"On June 4, 1928, the New York Times (p. 4) reported 'Credit Curb Hinted by Reserve Board.' The market actually rose slightly on June 5, but then, over the following week, the Dow plunged 7 percent. Policy news ought to be incorporated into securities prices almost immediately, and thus, it is unclear whether the Fed's announcement had any impact on the markets." -- Scott Sumner, The Midas Paradox, p. 47

This is a funny way to do historical research: one goes in knowing what should happen -- "policy news ought to be incorporated into securities prices almost immediately" -- and then creates the facts -- "it is unclear whether the Fed's announcement had any impact" -- based on the pre-existing theory.

There is a way to determine whether the news about the Fed was what "caused" this drop: detailed examination of the journals, memoirs, letters, newsletters and so on of stock market participants of that time, to see if this was really what was worrying them.

PS -- I am, of course, reviewing Sumner for publication. As I read, I pick out areas of disagreement, but I don't want you to think this is a bad book: it is not.

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