EMH

Tag: EMH

Fama & Thaler on the EMH

The Chicago Booth School gives us a spectacular interview with Eugene Fama and Robert Thaler on the efficient market hypothesis, the idea that prices reflect all available information.   

Thaler says he likes to parse this statement in two parts:  The first is whether you can individual investors outperform the market (doesn’t look promising); the second is whether prices are “correct” at any given point in time (I suppose it depends on what you mean).

The discussion is absolutely great, and you will learn a lot about economic modeling and thinking about testing economic models from two leading scholars who have thought a lot about it.   At one point, Fama somewhat hilariously (to economists, at least) declares himself to be “the most important behavioral-finance person, because without me and the efficient-markets model, there is no behavioral finance.”

Incidentally, the Booth school is also the source of the Initiative on Global Markets polls of economists, leading to the remarkable Which Economist are You Most Similar To? interactive tool.

 

 

Playing the Market

For those of you interested in financial markets, we have an upcoming talk and a fall seminar that may be of interest.   First up, this Monday, Grinnell College professor, Mark Montgomery, will give a lecture about the ins and outs of “The Notorious Efficient Market Hypothesis,” as he calls it.

The efficient market hypothesis is essentially in two parts:  First, that all publicly available information is immediately internalized into the extant stock price.  Immediately is pretty fast, so it’s tough to beat the market.  So, secondly, it is not possible to earn above average returns without taking above average risks — a disheartening message for any would-be financiers.   I’m certain that Professor Montgomery will give us a lively talk.

The talk is Monday at 4:30 p.m. in Seitz 102.

For those of you interested in learning about how economists think about investments should consider the Investments directed study that we will offer in the fall of 2015.  In the next few weeks we will roll out our 2015-16 schedule, so watch this space for details.