SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Pastimes : Clown-Free Zone... sorry, no clowns allowed
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: At_The_Ask who wrote (148181)2/4/2002 1:07:39 AM
From: GraceZ  Read Replies (2) of 436258
 
You should have asked me, if stock prices were completely random how could they be bounded by expectations.

Now if you really want to put your head in a twist, the same guy who gave you "random walk" also gave you "The efficient market thesis" , Eugene Fama.

dfafunds.com

Read this short interview and tell me if this small section makes sense to you in terms of how you understand random walk and/or efficient market:

Tanous: But if ’87 was a mistake, doesn’t that suggest that there are moments in time when markets are not efficiently priced?

Fama: Well, no. Take the previous crash in 1929. That one wasn’t big enough. So you have two crashes. One was too big [1987] and one was too small [1929]!

Tanous: But in an efficient market context, how are these crashes accounted for in terms of “correct pricing”? I mean, if the market was correctly priced on Friday, why did we need a crash on Monday?

Fama: That’s why I gave the example of two crashes. Half the time, the crashes should be too little, and half the time they should be too big.

Tanous: That’s not doing it for me. What am I missing?

Fama: Think of a distribution of errors. Unpredictable economic outcomes generate price changes. The distribution is around a mean—the expected return that people require to hold stocks. Now that distribution, in fact, has fat tails. That means that big pluses and big minuses are much more frequent than they are under a normal distribution. So we observe crashes way too frequently, but as long as they are half the time under-reactions and half the time over-reactions, there is nothing inefficient about it.
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2026 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News