Hey all, Never really posted here much… read your posts once in a while though… kind of my lil support group… guess i should start contributing a bit… just found an article that was fairly amusing… especially fer us l3’ers… basically fama and french talking about arbitrage and noise trading and behavioral finance in an interview…5 min read tops but i can’t believe i actually* understand what they mean… *by actually i mean kind of of course… enjoy… http://www.indexuniverse.com/component/content/article/2627.html?issue=110&magazineID=2&Itemid=11
Thanks, this is a nice read. Also it helps - if these guys sound a little confused and uncertain on these things after more than 25 years and some monumental publications in the industry, I don’t feel so bad about being unsure about where these premia come from. The marketers for investment products all make it sound like you’re a high school idiot if you don’t accept whatever theory it is that backs their product, but it’s really hard to prove much, other than that diversification is generally good. Here’s an interesting segment (sounds like it could be direct from Taleb): French: “People just don’t appreciate noise. Academics do, but in the practitioner world, people live or die by the next year’s return. We have a student who’s operating in the real world, and he says it’s a lot like Russian roulette: he knows most of his yearly return is determined by luck, but when you’re playing Russian roulette, you care a lot about luck. Over the long haul he expects to win, but in the short run he knows it’s almost all luck. But that’s a Ph.D. from Chicago. The man on the street-or even a good MBA student- has a hard time embracing randomness.”