quant speculators: nyt

Doug Henwood dhenwood at panix.com
Wed Jul 22 08:31:03 PDT 1998

christian a. gregory wrote:

>anybody else see the article in the new york times yesterday about
>quantitative theorists/ market jockeys? in the end, it argued that "the
>unexpectedly slow development of quantitative trading (i.e. the use of
>mathematical models to exploit "irrationalities" in the system) supports a
>long-held but hard-to-prove belief about stock markets, especially america's
>extraordinarily deep ones: they are formidably efficient, meaning stock
>prices are fair reflections of what the investing public will pay for shares
>at any given moment." hunh? so, the only logical options are (a)
>irrationalities can be explained and exploited (i.e. they aren't -that-
>irrational); and (b) irrationalities are incidental and/or peripheral to the
>bedrock rationality of market players?
>gawd, no wonder keynes is making a come-back in the pages of business week.

People are playing wordgames here with rationality and efficiency. Sure, the stock market is "efficient" - in the sense that changing perceptions are reflected almost instantaneously in prices. But are those perceptions accurate, or consistent with what went before and will come after? Are they relevant for anything beyond the trading moment? If the market correctly reflects the consensus of the moment, does that maket it "rational," even if that consensus is the product of mass psychology? Amazon.com's stock is worth more than the combined capitalization of Borders and Barnes & Noble. That efficiently reflects the perception that Amazon.com represents the future, where the sky's the limit. The market is efficiently & rationally incorporating that perception, but is the perception rational?


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