Visualizzazione post con etichetta eric falkenstein. Mostra tutti i post
Visualizzazione post con etichetta eric falkenstein. Mostra tutti i post

venerdì 8 luglio 2011

Bolle e razionalità del mercato

Il classico paralogismo del dilettnte suona così: la borsa crolla, il mercato è inefficiente.

Un commento.

Do Crashes Support or Disprove 'Rational' Markets?

Noneconomists tend to think 'rational markets' is patently absurd, pointing to various asset bubbles such as the internet bubble, the recent housing bubble, or the 1987 stock market crash. That is, most people think extreme events are evidence against rational markets.
Malkiel and Shliefer once took opposite sides of the market efficiency debate in the Wall Street Journal. Dutch and Royal Shell trade on two separate exchanges. These different listings by law apportion a 60:40 split of cash flows and thus should trade as such, but indeed they vary by as much as 30% from this fundamental equivalence. Shleifer calls this a ‘fantastic embarrassment’ to the efficient markets hypothesis, yet Malkiel also notes it as being within his bands of reasonableness. To me, this highlights that much of this debate gets into semantics, and such debates are rarely fruitful (Wall Street Journal, 12/28/00).
To assert markets are irrational or inefficient, however, one needs to propose a measure of 'true value', and then show that actual market prices diverge from this. As classically worded by economists, any test of market efficiency is a joint test of a market model and the concept of efficiency. Thus, your test may merely be rejecting your market model, not efficiency. You may think this is unfair, but it's simple logic, and you have to deal with it. It is essential to have a specific alternative, because how do you know they are wrong unless you know the right answer? With hindsight, prices that were once really high, now not, were 'wrong', but one has to be able to go back in time and show the then-consensus was obviously wrong. Thus, if you propose, say, some metric of P/E, or dividend payout ratios, that is fine, but then presumably there will be some range of P/Es that, when breached, generate inevitable mean-reversion thus demonstrating the correctness of the P/E ratio. Actual arbitrage, in the form of strategies that generate attractive Sharpe ratios, are necessary, and this is very hard to do.
One big issue in tests of whether prices are 'right' or not is the Peso Problem. The term 'peso problem' has a long history, and I have seen the term attributed to several people, in any case it was first applied to the fact that the higher interest rate one received in the Mexican Peso for decades, was erased in a single day in 1977 when the Peso was devalued by about 45%. In 1982 Mexico did it again. Thus, decades of seemingly higher returns could have merely been the expected probability and size of these devaluations. As these probabilities are small, they are often not seen 'in sample', and the standard errors on these probabilities are sufficiently high that it is very difficult to see if they are sufficient to explain, or even over-explain, a certain return premium. That is, when you have a 1% or 5% chance, annually, of a 75% depreciation, the appropriate offset is 0.75% or 3.75%, a big difference.
Tom Rietz used the 'peso problem' 1988 to explain the anomalously high equity premium puzzle, then estimated around 6%. Big events aren't anomalies, but rather explanations in the rational markets paradigm. Recently, Robert Barro noted that historically, there has been about a 2% chance of a 15% to 45% GDP decline, which would probably cause equity markets to fall 90%. The implication is that many return premiums are really a mirage. Further, volatility is totally rational, not too high, because reasonable, rational people will disagree as to the specific probability, and as they move from a consensus of a 2% to a 5% probability of disaster, the price fluctuates wildly.
Such events are not proof against efficient or rational markets, but rather, supports it, because estimating the probabilities of these important events is clearly very difficult. A rational market should move a lot as people change their estimation that, say, the next Microsoft is extant in a set of internet stocks (with potential future market cap of $200B), or that a worldwide Depression is likely. The Peso Problem literature goes back to the 1980's at least, and fits within the rational market approach as one of the main reasons things that appear anomalous actually are rational. If you think extreme events invalidate rational markets, this implies one has a lot of certainty for the magnitude and probability of highly improbable events, which is not very compelling (eg, what is the probability of a second leg in the current financial crisis? 1%? 10%? 50%?).
Andre Shleifer and Larry Summers once wrote that “[i]f the efficient markets hypothesis was a publicly traded security, its price would be enormously volatile" —-too volatile, supposedly. Presumably Shleifer and Summers think economists are rational and understand that the rational consensus around a proposition can and does vary wildly around the truth. So why can’t market participants also be considered rational and yet have their collective opinions vary wildly over time and space? Truth is a very slippery concept, and whatever it may be for various propositions, it is something reasonable people can often agree to disagree, in aggregate and at different times.
In 2001 the New York Times had two articles by different authors on behavioral economics. The story was a cliche: a stolid conventional wisdom experiences a Kuhnian shift, lead by a small band of outsiders willing to flout traditional ways. The behavioralists reject "the narrow, mechanical homo economicus" and instead argue that " that most people actually behave like . . . people!" One articled noted "Some Economists [the behavioralists] Call Behavior a Key", implying that previously economists never were concerned with 'behavior'. This straw-man smack down has continued in the financial press to this day, and meanwhile, there are no canonical models of asset pricing based on behavioralist insights, merely explanations for well-known anomalies like momentum, size, and value, that were documented outside this literature.
Danny Kahneman, co-author of the Behavioralist Bible Judgement Under Uncertainty: Heuristics and Biases (a book published in 1982 about work mainly from the 1970s) went on to win the Nobel Prize in 2002. Herbert Simon, won the Nobel Prize in 1978 for his insight that humans have limited computing power, and so often satisfice in their optimization. In my dissertation back in 1994, I had to put 'behavioral economics' is scare quotes, but it has been part of conventional wisdom for at least a decade now. It's all grown up now, and shouldn't be judged on its potential anymore. One should apply behavioral biases to market 'data' (not anecdotes, or highly parochial experiments).
Crashes are interesting, but people's obsession with them highlights the hindsight bias more than a real-time, generalizable bias. Prices fluctuate more than we would like. But is it too much? The future is very uncertain, and in the US where so many prominent financial researchers work, we tend to forget we had a very fortunate 20th century (2-0 in World Wars!). Looking at history, where many countries have seen their equity indices get zeroed out (Hungary, Russia, China, Chechoslovakia, Poland), and some centuries are peaceful(13th in Europe) others horrific (14th in Europe), who's to say whether the stock market should be twice, or half, its current level with that sort of state space

martedì 7 giugno 2011

La razionalità del mercato

Justin, let me first note that in your book, which I very much enjoyed, you make many gracious acknowledgements to the efficient markets hypothesis (EMH), such as the basic implication that it is very, very difficult to outperform the market. To outperform the market is incredibly hard, as evidenced by data not merely on retail investors who trade too much and tend to get into the market at exactly the wrong time, but professionals too, as mutual fund managers underperform their passive investment alternatives like night follows day. This is not a minor acknowledgment, but basically is the EMH theory.

Yet you call efficient markets a “myth” and say the theory “deluded” investors. “Efficient markets” appears to be a loaded phrase, with lots of baggage unrelated to the original definition presented by Eugene Fama back in 1965, which is that current market price is the best predictor of future price.

I think this distaste for efficient markets comes from two sources. First, many people distrust the “invisible hand.” They do not think markets are fair games that reward virtue and promote social welfare. Secondly, there are critics (stockbrokers, talking heads on CNBC, financial journalists) whose livelihood depends on markets being wrong; otherwise their special insight as to why one should be in telecoms, or bonds, would have no value.

Government fails more often than markets do

By definition, an efficient outcome is one that cannot be improved upon. I am no anarcho-capitalist. I think a collective must have rules, even government. Yet I think government power should be minimized, because government failure is far more common than market failure, as the I.Q. of a group is diminished by centralized interaction. Not only do government bureaucrats suffer from the same cognitive and emotional limitations as consumers and investors, they are politically motivated rather than merely self-interested.

Justin, you mention in your post that Robert Shiller noted that housing was on an unprecedented tear in 2004. But Shiller did not predict an aggregate housing decline; instead, he merely stated the recent increase in home prices was unlikely to continue. In the 2005 edition of Irrational Exuberance, he wrote that in some cities “the price increases may start to slow down, and then to fall. At the same time, it is likely the boom will continue for quite a while in other cities.”

Now, compare this modest warning by a lone economist to the forces promoting home lending from all directions. It was not just a Wall Street phenomenon, but one pushed by our government, legislators, regulators, and even academics (for evidence, see Stan Liebowitz’s “Anatomy of a Train Wreck“).

In 2002, President Bush bragged in a speech about how Freddie Mac had began a program to “help deserving families who have bad credit histories to qualify for homeownership loans.” Bank acquisitions were evaluated in part by their Community Reinvestment Act record, which necessitated lowering underwriting criteria on homes. Furthermore, the Federal Housing Administration was, and is, offering loans with only three percent down, and during the boom, the Department of Housing and Urban Development promoted a program where even this minor investment could be paid for by the homebuilder, allowing a homebuyer to purchase an overpriced house with no money down. As the Republicans discovered in 2004 when they tried to add more oversight to Fannie Mae, there was little legislative appetite for anything close to more stringent lending standards during the boom.

The market diagnosed the bubble

In light of this governmental housing exuberance, I doubt that a more powerful government would have mitigated the boom — rather, it would have made this crisis worse. Indeed, it was only the collapse of the subprime market at the beginning of 2007 as reflected by the ABX-HE subprime housing index that alerted people to the severity of this problem, and shut off financing by mid-2007, six months later. Market prices, not legislators, instigated the end of the insanity. How quickly are failed governmental initiatives usually stopped, once identified?

No one thinks markets are perfect, and EMH never says this. The proof that markets are efficient is that it is so improbable one can generate alpha — something you, like most EMH critics, concede. But the implications do not seem obvious. That you were able to find one person in 2004 and turn his measured warning into something that would have drastically reversed the regulatory emphasis on weakening underwriting standards is classic hindsight wisdom.

The nice thing is that markets rely on decentralized self-interest to keep prices in line, which is surely more dependable than legislators building patronage systems and pandering to their base with other people’s money. Letting markets, as opposed to bureaucrats, signal people how to get paid and how to invest, is simply better than the undefined alternative.

giovedì 19 maggio 2011

A 360 gradi

Atteso che ogni libertà dell’ uomo è riducibile ad una libertà economica, faccio due constatazioni:

1. l’ insensatezza di chi afferma “io sono liberale ma non liberista” o l’ equivalente: “io sono per la libertà, ma non per quella economica”.

2. il fatale magnetismo che ci fa passare regolarmente da auliche discussioni con a tema la libertà degli uomini, a prosaiche diatribe che hanno al centro il concetto di “efficienza dei mercato”.

Il secondo punto è particolarmente angosciante! Proprio cio’ che d’ istinto tendo ad evitare come la peste diventa la “fatale gravitazione” di ogni scambio di idee.

Sì, “angosciante”, perché in pochi, almeno al bar, trattano di “efficienza dei mercati” (Efficient Market Hipotesys - EMH) con cognizione di causa. Il concetto è sfuggente, direi contro-intuitivo.

Avete presente cosa diventa una discussione ideologica quando in più si maneggiano concetti contro-intuitivi che nessuno ha voglia di intuire a fondo?

Un inferno.

Spendo solo due parole per accennare alla difficoltà principale.

Comprendere cosa sia l’ efficienza di un’ organizzazione non aiuta a comprendere cosa sia l’ efficienza di un sistema complesso, anzi, a volte svia.

Prendiamo il mercato per eccellenza, quello borsistico; quando è efficiente?

Il profano pensa subito in modo vago ad operatori piuttosto informati che compiono scelte tutto sommato razionali. Per l’ “efficienza” questo è il minimo.

Santa ingenuità!

L’ “efficienza” di un meccanismo complesso ha a che fare con una particolare configurazione degli errori generati dagli operatori, mica con la fantomatica correttezza delle decisioni prese.

La gente sul mercato sbaglia eccome, ma…

… the problem for those who think the market is irrational is to generate a model that is better. To merely state, with hindsight, that people were overreact in one case, underreact in another, leads to an unbiased market in real time, and it is unbiasedness, not zero price variance, that is the essence of the efficient markets hypothesis… The efficient markets paradigm is a triumph of economics because it is so counterintuitive to the layman, so restrictive in what it allows, and so pervasive in its application… (link)

Insomma, capire che il mercato è efficiente significa capire che non c’ è a nostra disposizione un algoritmo per “batterlo” (in borsa “battere” il mercato significa generare nel periodo di riferimento un profitto superiore a quello medio di mercato).

Possiamo allora dire che il “sistema” non è perfetto ma non possiamo dire dove sbaglia.

Così come le “crisi”, anche gli errori di chi vi opera sono continui, ma non sistematici (ovvero “sistemabili” entro formule).

In ultima analisi accettare l’ efficienza del mercato significa accettare i limiti della nostra conoscenza (e quindi anche il fatto che non è per noi disponibile una ricetta attraverso cui diventare miliardari in borsa).

Ecco, il profano, pronunciando l’ espressione “efficienza del mercato” dovrebbe pensare più al concetto di “ignoranza” che a quello di “efficienza”.

Solo chi è disposto umilmente a riconoscere ed omaggiare l’ ignoranza dell’ uomo, simpatizza con EMH.

L’ efficienza non nasce da atti volontari, bensì da errori ed ignoranza. EMH è il frutto succoso di una pianta fiorita involontariamente grazie al corto circuito che genera la simultanea e imperfetta azione dei molti goffamente impegnati a chiudere il loro strampalato circuito personale.

Joe Liles in circolo

Lo psicologo si dedica ad elencare i bias cognitivi che rendono irrazionali le nostre scelte. Ma come mai gli psicologi non si arricchiscono giocando in borsa, visto che la sanno tanto lunga sul lato debole dei loro “avversari”?

Forse perché il loro elenco è troppo lungo e i bias individuati li spintonerebbero in tutte le direzioni.

Eugene Fama ebbe a dire che il mercato è efficiente proprio  perché è verosimilmente ipotizzabile che esistano una miriade di errori possibili e solo su un libero mercato si compiono tutti.

Ma proprio tutti: errori a 360 gradi!

venerdì 29 aprile 2011

Elogio di invidia e vendetta

Falkenstein riabilita la vendetta:

… Il sentimento della vendetta è una motivazione che bene o male  tocca tutti noi… tuttavia è considerato dai più qualcosa di stupido e di anacronistico… un virus malefico che appesta la razza umana… I leoni, per esempio, non ce l’ hanno… ma questo consente al leone maschio sopravvenuto di uccidere tutti i cuccioli del branco al fine di accoppiarsi con le femmine… se queste ultime, dopo l’ ecatombe, covassero sentimenti di vendetta, la tattica “stragista” non funzionerebbe così bene… sono grato di appartenere ad una specie che coltiva i sentimenti di vendetta… cio’ mi consente di vivere in società relativamente poco violente…

E poi anche l’ invidia:

… anche il sentimento dell’ invidia non và sprezzato, pensate solo a come si combina con un sentimento nobile come quello dell’ empatia: un carattere empatico è molto sensibile alla condizione di povertà e di bisogno del proprio vicino, eppure un povero degli Stati Uniti è infinitamente più ricco e meno bisognoso rispetto ad un povero di altre parti del mondo… evidentemente cio’ che compatiamo non è tanto la povertà o il bisogno ma l’ invidia che origina nel vicino da una condizione di povertà relativa che è costretto a soffrire, se trascurassimo l’ invidia, magari disprezzando questo sentimento, saremmo autorizzati a disinteressarci di lui…l’ invidia è un sentimento necessario affinchè ci sia compassione nei paesi economicamente sviluppati… la nostra “empatia” per l’ invidia altrui fa di noi dei “vicini” più pronti all’ aiuto reciproco…

Eric Falkenstein – Finding Alpha - Wiley