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There has been a lot of impassioned debate over the efficient markets hypothesis recently, but some of the disagreement has been semantic rather than substantive, based on a failure to distinguish clearly between informational efficiency and allocative efficiency. Roughly speaking, informational efficiency states that active management strategies that seek to identify mispriced securities cannot succeed systematically, and that individuals should therefore adopt passive strategies such as investments in index funds. Allocative efficiency requires more than this, and is satisfied when the price of an asset accurately reflects the (appropriately discounted) stream of earnings that it is expected to yield over the course of its existence.
In a post yesterday, my west coast pal Paul discusses how the Chicago School of Economics Circling the Theoretical Drain :
In the fourth of a series about innovation in banking, it’s worth looking at the business models of the new entrants who are trying to disrupt this space and pose the question: are they sustainable?
Cyprus – Greece or Iceland?
In the wake of the singularly unproductive COP15 Climate Change conference in Copenhagen , I have been reflecting on the polarisation of views on climate change along political lines.
Opicinus de Canistris (1296–ca. 1354) – Diagram with Crucifixion