Tag Archives: efficient market hypothesis

Review of “Models. Behaving. Badly.” by Emanuel Derman

Why confusing illusion with reality can lead to disaster, on Wall Street and in life. Note that the cover is more clever than you might at first notice. Ceci n’est pas une pipe. You might also have a guess at the reason for the punctuation in the title. Executive summary Non-quants should embrace models more, … Continue reading

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Efficient Atmospheres Hypothesis

Mark Buchanan in The Physics of Finance has another great post called “Of hurricanes and economic equilibrium”. The Efficient Market Hypothesis has been beaten up quite a lot lately, but this is quite a nice pummeling.  How would a meteorologist using the equivalent of the EMH fare in the aftermath of Hurricane Irene? Subscribe to … Continue reading

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Market efficiency versus stability

Mark Buchanan has a piece on Bloomberg called “Sand in the machine the key to stable markets”. This is an introduction into the idea that market efficiency is at odds with market stability. A couple of quotes: Every modern economy depends on financial markets … to funnel capital into the most worthwhile enterprises. But we … Continue reading

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Market beliefs

Friday was a day to fool others.  Every day is a day to fool ourselves. Primed to know The video gives a great example of how knowing what to expect makes the expectation come true.  The entire 13.5 minute talk is wonderful, but you can skip to about the 9 minute mark to experience the … Continue reading

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Financial instability

Instability in the economy seems to be the zeitgeist of the week. Counter-intuitives Science Daily has a story on a mathematical model of extinction. Apparently a key finding is that the most effective interventions in the model when a species declines are counter-intuitive.  An analogy: brakes don’t stop you when you are driving in snow, … Continue reading

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Boris The Banker explains efficient markets

Amy Anyone: What is EMH? Boris The Banker: That’s the Efficient Market Hypothesis, or sometimes the Efficient Markets Hypothesis. Amy: What’s that? Boris: It says that all available and relevant information has been taken into account in the price of items in the market — a stock market for example. Amy: Does it have any … Continue reading

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The tightrope of the random walk

We’re really interested in markets, but we’ll start with a series of coin tosses.  If the coin lands heads, then we go up one; if it lands tails, we go down one. Figure 1: A coin toss path.Figure 1 is the result of one thousand coin flips.  It is a random walk. The R command … Continue reading

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