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More ranting: Fama's logic trap.
0Brian0
03-16-2007, 1:39 AM | Post #2359359
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Fama on inefficiencies:
QUOTE
Well, if you can't measure them, you might as well say they don't exist.
END QUOTE
This really belongs in the "truth is stranger than fiction" pile. Here is a guy who is ASSUMING efficient markets with zero proof, and then saying that if you can't disprove his assumption it must be true. He then insists on a very high standard of statistical proof of counter-example - it takes for example between 20 and 800 years to statistically "prove" that a manager is skillful, not lucky.
How many things are wrong with this picture?
(1) I assume that Martians walk backwards - prove me wrong. If you can't I must be right
(2) the assumptions required for so-called statistical proof do not hold in financial markets: stable statistical processes. So if you play the game by Fama's rules, you're SOL
(3) if somehow a creature evolved which relied on modern statistics to make decisions, it would quickly become extinct. Mankind included. There are far faster and more practical ways to reach conclusions than "statistical proof".
(4) Fama's vacuous theory takes up space, and prevents real progress in the field of finance. The fact is that the mispricing due to market noise that fundamental indexing identifies and relies upon explains far better the value premium than the value premium "explains" the fundamental indexing results.
Once again, perhaps rudely, I ask - when is this "genius" going to retire? We need creative thought, not dogma, to understand the markets.
Originally posted in thread: 58131
Topics
Indexing
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