3 ms·
Crashes can always come. Efficient markets have already priced in all these well known reasons for one. This article makes the classic mistake of exaggerating
by artsrc 16y ago
Crashes can always come. Efficient markets have already priced in all these well known reasons for one.
This article makes the classic mistake of exaggerating the known risks.
Actually the crash is just as likely to be caused by something unknown. Maybe the US market will crash because the introduction an old age pension in China means they don't need to invest as much, and they just use the money buy Sushi instead.
- loewenskind 16y ago> Efficient markets have already priced in all these well known reasons for one. Too bad there's no such thing as an efficient market [1]. [1] http://arxiv.org/abs/1002.2284 http://arxiv.org/abs/1002.2284
- artsrc 16y agoThanks for the link. I think this paper does help put bounds on the upper limits to creating efficiency through some mechanisms. Using those bounds you can think about the limits to which reasons for crashes are not reflected, based on size of the time series of crashes. I always think of efficient markets as an idea like a frictionless surface, an invalid, simplifying model to make the mathematics tractable. So the question would be is the market close enough to efficient that well understood crashes are reasonably well reflected in it, most of the time: implying you should be thinking about something else. I guess I should not believe in efficient markets since I work for a large active fund manager. Our definition of "weakly efficient" is different that the paper you site. Our definition is "close enough to efficient to make exploitation infeasible". And I can't simultaneously believe in that, and believe in our products.
- c1sc0 16y agoTrust me, the Chinese won't be buying Sushi.
- artsrc 16y agoWhen I was a young child, Australians did not eat much Sushi either. http://www.thebeijinger.com/blog/2009/08/26/Raw-Power-Beijings-Best-Sushi http://www.thebeijinger.com/blog/2009/08/26/Raw-Power-Beijin...
- c1sc0 16y agoI stand corrected, but my impression is still that it is going to take a while for them to get over their resentment for all things Japanese.