Tag Archive: efficient market hypothesis


Market Efficiency

I dare to write on this topic as it is the most intense and debatable topic in the financial markets over the years.blog

The author of “Fooled by Randomness” and “The Black Swan” Nassim Taleb became the anti-theorist in finance arguing that the Nobel committee should be sued for awarding Harry Markowitz, Bill Sharpe and Merton Miller http://www.bloomberg.com/news/2010-10-08/taleb-says-crisis-makes-nobel-panel-liable-for-legitimizing-economists.html

But the Guru of Corporate finance Aswath Damodaran did a posting replying to him on the market efficiency models. http://aswathdamodaran.blogspot.com/2010/10/nassim-taleb-and-nobel-committee.html Continue reading

Many concepts in finance and economics are predicated on markets behaving rationally. Unfortunately for economists blogeverywhere, humans can often behave irrationally, thus ruining many predictive models. In response to this apparent failing in what is called the “efficient market hypothesis,” a segment of economics called behavioral finance has emerged in order to explain why irrational behavior happens. Behavioral finance is an intersection of psychology and economics that studies why people behave the way they do when it comes to finances, risk, and other topics.

One aspect of behavioral finance is the exploration of cognitive biases. At its core, cognitive biases are thought patterns that cause people to make poor choices, even when evidence to the contrary is clear. They are thought to be mental leftovers from an earlier part of humanity’s evolution. Continue reading

It’s always difficult to post the latest event and findings, just to put it in prospective. Is there anything in the Indian papers worth blogreading today? Or shall wait 4 the outrage to surface it?

Sharing two of the contrary indicators and psychology of Efficient Market Hypothesis and Black Swan that I have taken from the reformed broker and Hedgeye blog.

Sometimes it can be the Black duck

 “The trouble with the Recency Effect is that everyone all of a sudden thought they were Nassim Taleb, ornithological experts on the spotting of Black Swans. Every blip on the screen or blurb in the newspaper was fresh evidence of the next hundred years’ storm. Forget being fooled by randomness, people have become obsessed with randomness. Continue reading

I Follow Noahpinion blog by  prof Noah Smith, he recently made a remarkable article by comparing Fama were Newton, would Shiller be GoogleEinstein? OK OK, another quick break from my blogging break. An Econ Nobel for behavioral finance is just too juicy to resist commenting on.

Before the prize was announced, Prof  said that it would be funny if Fama and Shiller shared the prize. But he also think it’s perfectly appropriate and right that they did. Many people have called this prize self-contradictory, but I don’t think that’s the case at all. If Newton and Einstein had lived at the same time, and received prizes in the same year, would people say that was a contradiction? I hope not! And although it’s probably true that no economist is on the same intellectual plane as those legendary physicists, Fama’s Efficient Markets Hypothesis (which was actually conceived earlier, in different forms, by Bachelier and Samuelson and probably others) seems to me to be the closest thing finance has to Newton’s laws, and behavioral finance – of which Shiller is one of the main inventors – seems like an update to the basic EMH theory, sort of like relativity and quantum mechanics were updates to Newton. Continue reading

It’s always difficult to post the latest event and findings,just to put it in prospective. Is there anything in the Indian papers worth reading today? imagesOr shall wait 4 the outrage to surface it?

Sharing two of the contrary indicators and psychology of Efficient Market Hypothesis and Black Swan, that I have taken from The reformed broker and Hedgeye blog.

Sometimes it can be the Black duck

“The trouble with the Recency Effect is that everyone all of a sudden thought they were Nassim Taleb, orinthological experts on the spotting of Black Swans. Every blip on the screen or blurb in the newspaper was fresh evidence of the next hundred years’ storm. Forget being fooled by randomness, people have become obsessed with randomness.  Continue reading

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