efficient market theory v. the adaptive market hypothesis

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A lot of work's been done with AMH re financial markets, but I haven't seen anything on its application to sports. It may not apply at all because every game is final and you'd probably never know if you were right, anyway, because of variance factors.

With corn, for example, even after crop reports come out, it's still corn. But the team itself changes after injury reports or even when going between a home and away game. And be careful when you speak of quantification, because there you're looking for inefficiencies, which is discussed at great lengths in this forum.

Remember, the main thesis of AMH is that the market adapts, so inefficiencies disappear.

Thanks. I'll probably let this thread die. Let the math whizzes bury it with their threads.

I still don't really understand how you reach this sort of conclusion. Just by way of example, I used to trade coffee options with a weather play.

Essentially I would wait until there was a forecast of severe weather in Brazil which at the time was by far the biggest Arabica producer. Based on a sample of reports from previous years, I was able to estimate with a good degree of accuracy how much the price would spike relative to the severity of the forecasts.

History had shown that such a spike was nearly always an overreaction but rather than just short the coffee futures, I could also take advantage of the increased volatility by buying a small number of call options which were out of the money while selling a larger number of calls which were further out of the money.


Similar overreactions to new information can be seen in sports markets. In an in-play cricket match, for example the fall of a wicket (sort of like an out or end of innings in baseball) sees markets 'spike' in a manner which is largely predictable but is also, more often than not, an overreaction to the new information. Indeed you don't have to wait long to confirm that because the correction often happens before another ball has been bowled.