Quote of the day


Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. - Paul Samuelson



by datacharmer | Monday, April 23, 2007
  , | | Quote of the day @bluematterblogtwitter

1 comments:

  1. Anonymous Says: 09/05/2007, 12:02  

    I know it's seen as very controversial for an economist to say this but I don't agree with the efficient market hypothesis that Paul Samuelson's quote is based on.

    Firstly, the efficient market hypothesis assumes all knowable information at time t is already "reflected in prices" or "priced in", but this effectively assumes a single pricing model for securities, whereas in practice there are many different ways of arriving at a share price so it's not clear under what system of valuation the stock of current knowledge is priced in. In theory the valuation of the marginal investor is what matters, but identity of the marginal investor is not constant and neither necessarily is his view on pricing model.

    Secondly, does the existence of individuals like Warren Buffett and Peter Lynch disprove the efficient market hypothesis? If the chance of making a good trade is a white error noise term, then for those two individuals to have hit the far positive tail of the shock distribution so many times would probably require a human population of trillions of trillions before you would expect probabilistically for that to have happened.

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