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In relation to emh, how do stockbrokers become rich?

Asked by Andrew Turner on April 17th 2012 1:47 p.m.

1 Answer to this question...

Answered by Hannah McCardle on April 17th 2012 2:17 p.m.
EMH basically suggests that you cannot make long term gains above the stock market as there is perfect information, hence the prices will reflect the correct value of the stock. Stockbrokers can then become rich in two ways. One is through comission form trades - as long as their clients trade they will always make a basic comission on it so will make money that way. The second way is through feeding clients specific information that will lead to personal gain either through increased trading or through some of the "carry" (the upside) they get from this form of manipulation. For example by telling one client to purchase a stock, telling others it is underpriced, getting them to go in and help raise the price of it, then to get the intial client to exit at this point. As the stockbroker may hold more information than the client they can use EMH to their advantage (although arguably arbitrage will being the price back to the correct one)