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I don't think this is right at all. I would be surprised if Alfred Winslow Jones or Warren Buffet (who were some of the earliest "hedge fund" managers) were sig
by Jackson12 6y ago
I don't think this is right at all. I would be surprised if Alfred Winslow Jones or Warren Buffet (who were some of the earliest "hedge fund" managers) were significantly influenced by Bachelier's ideas. Buffet is famously neither especially quantitative in his investment style nor a believer in EMH.
Financial "technology" pretty seldom actually originates in academia. It's more common that academics formally describe or justify something that market practitioners are already doing. The piece briefly mentions Bachelier doing this. There's good evidence that option prices were (relatively) efficient several decades before Black-Scholes was discovered. And Jones arguably came up with the notion of "beta" before CAPM was a thing. The only real exception I can think of is factor investing.
This might seem kind of petty. But the notion that academia drives (or should drive) finance is not a benign myth. The LTCM crisis and the 2008 GFC were arguably caused by the uncritical application of ideas developed in the academy. I expect more.
- smabie 6y agoThe fact that Ed Thorp made such a killing trading warrants suggests that warrent prices were not very efficient before BS.
- Jackson12 6y agohttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=3444897 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3444897 As far as I know Ed Thorp also made a lot of money after B-S was published. So it doesn't necessarily follow that B-S made the market more efficient. Also, doesn't his discovering B-S before it's publication and using it to make money support what I'm saying?
- zeckalpha 6y agoBuffett is fairly quantitative but on measures of fundamentals rather than technicals.
- reducesuffering 6y agoTook the words out of my hands. I feel like few people are as mindful of the raw fundamental financial metrics of companies. As you said, that's just not the same math PhD type technical stuff that hedge funds and others work on.
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- bernardv 6y agoVery true. The earliest hedge funds did not rely on option pricing, or options for that matter.
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