Monday, October 14, 2013

The Bank of Sweden gives the prize for the efficient market hypothesis

Lars Syll was right, the Bank of Sweden awarded the Sveriges Riksbank Prize in Memory of Alfred Nobel to Eugene Fama for the Efficient Market Hypothesis (EMH). Lars Peter Hansen and Robert J. Shiller were also recognized for the work on the statistical tests about rational bubbles and for providing evidence that suggests that the EMH might not work, respectively. Even if tempered by Shiller, a New Keynesian that writes with Akerloff, it is still pretty audacious to give Fama and the EMH a 'Nobel' after the last financial crisis. If you had doubts about the state of the profession, and the resilience of the mainstream, this should wipe them out.

5 comments:

  1. The prize is "for their empirical analysis of asset prices" so not for EMH as such. Tyler cowen got two out of three for his 2012 predictions - a year late: http://marginalrevolution.com/marginalrevolution/2012/10/handicapping-the-2012-nobel.html

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  2. Yes, but Fama got it because he and his "collaborators demonstrated that stock prices are extremely difficult to predict in the short run, and that new information is very quickly incorporated into prices." In others words, for the evidence EMH.

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    1. But those two statements are factually true. Stock prices are indeed difficult to predict in the short-run and quickly incorporate new information. That is a well-deserved prize if there is any.

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    2. Well sure short term prices are difficult to predict. But they do not reflect all information or more importantly the fundamentals. Sometimes they reflect also imagined information, and crazy expectations. We obviously disagree on your last assertion.

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  3. Didn't Keynes have something to say about thus in the treatise? I guess the honor is emblematic of blowing up economics.

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