Below is an extract from Pablo's blog which I follow:
From hedge fund manager John Seo, the following illuminating ruminations:
These academics couldn't understand the fact that they couldn't beat the markets. So they just said it was efficient. And, Oh, by the way, here's a ton of math you don't understand? Wait a minute. Could it really be that simple? Is efficient market theory a direct result of theorists inability to make money in the markets (or, worse, jealousy at those players that do make money in the markets and who perhaps, sin of sins, never dared to offer a real-life job to the academics)? Is the true thinking behind the (improbable) theory the following: since I can´t make money, either because I don´t have the ability or because no one ever gave me a chance at it, then I just state that no one can. Perfect alibi, and by the way it allows me to say that anyone who beats the market is simply a lucky aberration. It is tempting to think, following Seo´s words, that had certain notable finance theorists gotten a job as hedge fund managers rather than a university post, efficient market theory would have never taken flight.
This is in some sense related to the 'Drawer phenomenon' (or something similar which I fail to recollect). It says that among all research done on the efficient markets theory, only those findings come out / are published which confirm the efficient markets hypothesis. Any research which detects an inefficient markets is not published because the author has a financial incentive to withhold this information from the public and use it to make money in the markets. Hence, all such findings are safely tucked inside the drawers of the researchers :)
However, there is a catch to it. There are other incentives (sometimes much more rewarding than just money) awaiting someone with any such findings.
Rritu
From hedge fund manager John Seo, the following illuminating ruminations:
These academics couldn't understand the fact that they couldn't beat the markets. So they just said it was efficient. And, Oh, by the way, here's a ton of math you don't understand? Wait a minute. Could it really be that simple? Is efficient market theory a direct result of theorists inability to make money in the markets (or, worse, jealousy at those players that do make money in the markets and who perhaps, sin of sins, never dared to offer a real-life job to the academics)? Is the true thinking behind the (improbable) theory the following: since I can´t make money, either because I don´t have the ability or because no one ever gave me a chance at it, then I just state that no one can. Perfect alibi, and by the way it allows me to say that anyone who beats the market is simply a lucky aberration. It is tempting to think, following Seo´s words, that had certain notable finance theorists gotten a job as hedge fund managers rather than a university post, efficient market theory would have never taken flight.
This is in some sense related to the 'Drawer phenomenon' (or something similar which I fail to recollect). It says that among all research done on the efficient markets theory, only those findings come out / are published which confirm the efficient markets hypothesis. Any research which detects an inefficient markets is not published because the author has a financial incentive to withhold this information from the public and use it to make money in the markets. Hence, all such findings are safely tucked inside the drawers of the researchers :)
However, there is a catch to it. There are other incentives (sometimes much more rewarding than just money) awaiting someone with any such findings.
Rritu
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