Eugene Fama, Robert Shiller won Nobel in Economics
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  Eugene Fama, Robert Shiller won Nobel in Economics
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Author Topic: Eugene Fama, Robert Shiller won Nobel in Economics  (Read 990 times)
Beet
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« on: October 14, 2013, 10:27:36 AM »

for their work on asset price theory. I'm not sure who the third guy is, but if you studied method of moments in finance then he's your guy.  Fama and Shiller are another odd couple in the vein of Gunnar Myrdal and Frederich von Hayek.
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Torie
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« Reply #1 on: October 14, 2013, 11:30:23 AM »
« Edited: October 14, 2013, 11:34:58 AM by Torie »

Fama was a former professor of mine. Not that great as a teacher, but excellent at seeing the forest through the trees, except that certain forest that the apparently higher expected return for value oriented as opposed to growth oriented assets has much more to do with the lottery ticket syndrome (I want to buy the next Microsoft or Berkshire Hathaway), than due to inherently higher risk (the latter would need to be the case if the efficient market hypothesis (be it in strong, middling or weak form) were always true, all the time, everywhere, as to which Fama was quite the hard liner). It was an exciting moment when my friend Bill Bernstein and I arranged to get our hands on Schiller's data base via DFA, and explore how value versus growth stocks did in the Great Depression (what I call "collapse risk"), an exercise we did again after Lehman.

Fama now has smelled the roses, and finally thrown in the towel on this issue more or less. Stubborn man. He'd fit right in here on the Atlas. Tongue
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Beet
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« Reply #2 on: October 14, 2013, 11:35:11 AM »

It was an exciting moment when my friend Bill Bernstein and I arranged to get our hands on Schiller's data base via DFA, and explore how value versus growth stocks did in the Great Depression (which I call "collapse risk"), an exercise we did again after Lehman.

Nice. Would you ever care to post the results here?
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Torie
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« Reply #3 on: October 14, 2013, 11:39:00 AM »
« Edited: October 14, 2013, 11:40:41 AM by Torie »

It was an exciting moment when my friend Bill Bernstein and I arranged to get our hands on Schiller's data base via DFA, and explore how value versus growth stocks did in the Great Depression (which I call "collapse risk"), an exercise we did again after Lehman.

Nice. Would you ever care to post the results here?

Value did do a tad worse, but the difference was very marginal - not nearly enough to justify the rather substantial historical divergence in returns, not to mention that outside the collapse risk zone, value generally has had substantially lower standard deviations in return, particularly since about the mid 1960's.
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Beet
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« Reply #4 on: October 14, 2013, 05:36:31 PM »

http://delong.typepad.com/sdj/2013/10/eugene-fama-on-the-housing-bubble.html

Wow; just wow.
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Nathan
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« Reply #5 on: October 14, 2013, 06:03:18 PM »

The 'Nobel' in Economics.
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Torie
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« Reply #6 on: October 14, 2013, 06:12:43 PM »
« Edited: October 14, 2013, 06:19:20 PM by Torie »


In defense in part of Fama on this one (I told you he was a stubborn cuss), the market literally did not seem to know that the garbage securitized mortgages were leveraged by about 90% or something like that. So the blow up was about 10 times bigger than could be anticipated. "We" all knew the mortgages were garbage. I knew, my friends with a brain in the mortgage industry that I knew, knew ( (yes, such folks with something upstairs exist believe it or not),  "everyone" knew as it were, that they would blow up when housing prices stopped going up, and the house of cards collapsed. But we didn't know the securitized mortgage pools themselves were purchased with such heavy leverage, nor did we know that the players actually did little or no due diligence either. Nor did we know that the credit rating agencies themselves were basically corrupt (yes corrupt). Stuff that is real that is not in the public domain for whatever reason, that then comes back to bite your ass, is not inconsistent with the efficient market hypothesis (at least in the middling and weak form). I am amazed that Fama did not make this point, or if he touched on it elliptically, not clearly. I told you he was not a very good teacher.
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Beet
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« Reply #7 on: October 14, 2013, 07:45:47 PM »

He was verging on completely incoherent. According to his theory (in the interview), as far as I could tell, the recession was caused by some mystical unknown economic factor and the credit crisis was the result of the recession. No doubt that once both are underway there the feedback forces come to dominate, but the credit crunch clearly started before the recession, as Cassidy gently tried to point out. He gets his facts wrong and then comes up with a complete non-explanation for his bizarre theory. Plus, throwing in Fannie and Freddie in there even though those institutions' mistakes were credit and pricing mistakes when he spends the rest of the interview trying to argue that credit and pricing werent the problem just makes him seem like a complete hack.

As for Efficient Market Hypothesis, it works when you see society as basically a giant computer. The weak form is just a computer with a smaller hard drive. I really think the Chicago-style free market theorists would be quite at home in the Soviet State Planning Committee. A preference for theory over practice, a belief that the economy can be rationally modeled with just the right equations and first principles. Really their only difference with the Soviets... as Hayek argued, they thought the Soviets essentially didn't gather enough information; their computers weren't powerful enough. There are many similarities in the two world views.
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TheDeadFlagBlues
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« Reply #8 on: October 30, 2013, 12:40:02 AM »

Moderate Hero decision, Eugene Fama should be placed under permanent house arrest in a suburb of Dublin or Las Vegas so that he may view his works and despair.
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