Posted: Nov 16, 2013 10:48 pm
by GT2211
4 Hours wrote:Disagree re: Fama, not necessarily the other guys. The EMH is bunk. Check out the following for a compelling analogy, the "Efficient Atmosphere Hypothesis":

http://physicsoffinance.blogspot.com/20 ... brium.html

Also, one of the heterodox economic books I read recently—towards which I have mixed feelings (see here: http://www.amazon.com/review/RDT0SXS4M5 ... nskepti-20) included the following telling excerpt:

While Kahneman was eventually awarded the economics ver­sion of the Nobel Prize for his work (Tversky had died), the findings of behavioural economics have long been viewed suspiciously by the mainstream. To efficient market purists, things like bubbles, or irrational behaviour, are inventions of people who don't understand the wisdom of the market. As Eugene Fama said in 2007, at the height of the US housing bubble, "economists are arrogant people. And be­cause they can't explain something, it becomes irrational ... The word 'bubble' drives me nuts."


What a tool. Seriously, what a frigging tool.

>yfw 25-standard deviation events in financial markets

-First off I think most economists agree that Eugene Fama is not a very good macroeconomist.
-I don't agree necessarily that the findings of behavioral economists have been viewed with suspicion by the mainstream. That Kahneman won a Nobel is I think evidence of this.
-I think your first link misinterprets the EMH. It is not true in the weak form of EMH that markets always be in or near equilibrium nor is this true of which it links to:
Let's look at this in a little more detail. The Weak form of the EMH merely asserts that asset prices fluctuate in a random way so that there's no information in past prices which can be used to predict future prices. As it is, even this weak form appears to be definitively false if it is taken to apply to all asset prices. In their 1999 book A Non-random Walk Down Wall St, Andrew Lo and Craig MacKinley documented a host of predictable patterns in the movements of stocks and other assets. Many of these patterns disappeared after being discovered -- presumably because some market agents began trading on these strategies -- but there existence for a short time proves that markets have some predictability.

http://physicsoffinance.blogspot.com/20 ... rkets.html

We've known since the 60's that some people have been able to temporarily beat the market with some kind of model that produces better result. Its the EMH's position(at least in its weak form which is what the author is supposedly debunking) that any such models must only produce temporary results. That it can't systematically exploit it long term to produce better than average returns of the market because others will start using it and it will become a part of the market.