Friday, October 9, 2009

Nobel Prize for Efficient Markets Hypothesis?

One of the core ideas driving the derivation of the Black-Scholes model is the efficient markets hypothesis. Exactly what this comes to is hopefully something I'll post on next week. But for now I'll pass on this from NPR's Marketplace:
Kai Ryssdal's final note.

Not so much news as a commentary on the state of the economic profession. The Nobel Prize in economics comes out Monday morning. I obviously have no idea who's going to win, but the markets think they do. The betting line at Ladbrokes, in London, has Eugene Fama of the University of Chicago as a 2-to-1 favorite.

That's all well and good except for this: Fama's best known for something called the Efficient Markets Theory. That the markets are, in essence, always right. I dunno, I'd say that's a tough sell after the year and a half we've just had. More to come on Monday.


Kenny said...

Well, if he doesn't win the prize this year, then that proves that the market doesn't always know best!

I remember there was some talk last year of Fama, but they figured his chances dropped drastically in the last few weeks of deliberation along with the financial markets.

hyperpapeterie said...

At marginal revolution, they extended kenny's point to the quip that since ladbrokes favored him, Fama would deserve the result he got whether or not he won.

Chris Pincock said...

Well, it looks like Fama is out of luck again this year -- the winners turned out to be real long shots:

Kai Ryssdal's final note

A quick follow-up on my Nobel Prize prognostication of last week. First of all, it is properly the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, since it wasn't in the original establishment of the award.

But more to the point: the odds-makers. Oliver Williamson was a 50-to-1 longshot. Elinor Ostrom wasn't even on the list of possibles. Either way, they still get the gold medal and half the $1.4 million prize.

徐若瑄Vivian said...
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