A Sad, Sorry Song

by Thomas McQuade

In looking back over the many excellent posts and comments that have graced ThinkMarkets in its first year, I was struck by the fact that, while many of the literary virtues have been displayed, there has been – surprisingly – nothing that could pass as poetry.  I hope to be forgiven the presumption of attempting to rectify that omission with the following submission, vile doggerel though it may be.

I have a tale to tell, O!  (A sad, sorry tale, O!) …
It is told in the hope there’s no slipp’ry slope
And that prudence can prevail, O!
Tells the cause of a crisis, cruelly cast
Hitting hard-won savings, thought amassed.
It involves good intentions gone astray,
And the misplaced myth that some experts may
By their brains and their brilliance brave the way
To ensure economic ease, O!

Some Thoughts on Efficient Markets

by Mario Rizzo  

The New York Times had a very interesting article recently on the demise of the efficient markets hypothesis. The proximate cause of this demise is the failure of the hypothesis to explain the recent financial meltdown. It has been standard for Austrians to say – not just recently but over many years – that the hypothesis could not be strictly correct.  At the very least, Austrians would supplement it with a theory of arbitrageurs who take advantage of asset-pricing inefficiencies and move markets toward greater efficiency.  

Furthermore, there are issues about just what an efficient asset market is. What does it mean for all “available” information to be taken into account in asset prices? Available to whom? Information interpreted by whom? The matter of interpretation gives rise to the question of whether there is only one correct model of efficient information use. Today’s information must be used to predict future returns. They may be more than one scenario consistent with the efficient use of today’s information.