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> Except, we've learned via a robust body of research over the last 5 decades that the market is largely efficient. Oh? Care to cite some of that research? And

> Except, we've learned via a robust body of research over the last 5 decades that the market is largely efficient. Oh? Care to cite some of that research? And let me preempt a few common citations which don't actually work: 1. Warren Buffett's hedge fund bet does not prove this. Among other reasons, he made a bet concerning the performance of a fund of funds, not any particular outlier. 2. Eugene Fama's research on the Efficient Market Hypothesis (EMH) does not prove this (while we're at it, Fama would disagree with you that the market is efficient). His work applies the EMH as a means of studying efficiency, not asserting efficiency. One of the most common misconceptions of Fama's work is that it's descriptive instead of prescriptive. 3. When you actually do the math, the number of hedge funds that has ever existed is nowhere near what you'd need to explain the outliers like RenTech or Baupost. So the common coin flipping analogy actually doesn't prove it either. I can save you a trip to look for citations - the "robust" body of research you're talking about doesn't exist. There is no such consensus. The efficient market is a model which only approximates real world conditions - it do so imperfectly, and in the best case it only works locally. Here is an article [1] written by Cliff Asness on the topic of the EMH which might be educational. Asness earned his PhD under Fama and founded AQR, one of the more successful hedge funds. He also regularly comments on, and published, research. There remains a great feal of inefficiency at the macro level, even on horizons measured in years. ______________________ 1. https://www.institutionalinvestor.com/article/b14zbgrj5pflsc/the-great-divide-over-market-efficiency https://www.institutionalinvestor.com/article/b14zbgrj5pflsc...

pembrook 8y ago
As I stated, the market is largely efficient. I did not say it is completely efficient. Also throwing out Rentech as an example just further proves my point. The inefficiencies that Medallion fund is exploiting are extremely capital constrained (ie. They are very tiny). This is why they don’t accept outside investor money and even limit the amounts employees can have in the fund. The fund is limited to roughly $3 billion, because the inefficiency they are exploiting is that small. An inefficiency of $3 billion in capital markets of roughly $100 trillion dollars is tiny. All of Rentech’s larger funds for outside investors have not shown the same ability to beat the market. Also, I’m amazed that you use Asness as a counterpoint, because if you’ve ever heard him speak, he would agree that the market is “largely efficient.” I’ve literally heard him say those words in person. Asness’s entire hedge fund is based on Fama’s factor models. He literally makes his money by making the market even more efficient. He has admitted long-short factor funds like his have likely reduced (and will continue to reduce) factor alpha, hence why they need to apply leverage to make these returns significant.

pembrook 8y ago

As I stated, the market is largely efficient. I did not say it is completely efficient. Also throwing out Rentech as an example just further proves my point. The inefficiencies that Medallion fund is exploiting are extremely capital constrained (ie. They are very tiny). This is why they don’t accept outside investor money and even limit the amounts employees can have in the fund. The fund is limited to roughly $3 billion, because the inefficiency they are exploiting is that small. An inefficiency of $3 billion in capital markets of roughly $100 trillion dollars is tiny. All of Rentech’s larger funds for outside investors have not shown the same ability to beat the market. Also, I’m amazed that you use Asness as a counterpoint, because if you’ve ever heard him speak, he would agree that the market is “largely efficient.” I’ve literally heard him say those words in person. Asness’s entire hedge fund is based on Fama’s factor models. He literally makes his money by making the market even more efficient. He has admitted long-short factor funds like his have likely reduced (and will continue to reduce) factor alpha, hence why they need to apply leverage to make these returns significant.