Mandelbrot (RIP) on efficient markets

Discussion in 'Educational Resources' started by Pekelo, Oct 17, 2010.

  1. Pekelo



    This one has Taleb too:

    This is from Fama in '63, but Mandelbrot was his doctoral supervisor:

    "The fact that there are a large number of abrupt changes in a stable Paretian market means, of course, that such a market is inherently more risky for the speculator or investor than a Gaussian market. The variability of a given expected yield is higher in a stable Paretian market than it would be in a Gaussian market, and the probability of large losses is greater.

    Moreover, in a stable Paretian market speculators cannot usually protect themselves from large losses by means of such devices as "stop-loss" orders. In a Gaussian market if the price change across a long period of time is very large, chances are the total change will be the result of a large number of very small changes. In a market that is stable Paretian with &#945; < 2, however, a large price change across a long interval will more than likely be the result of a few very large changes that took place during smaller subintervals. This means that if the price level is going to fall very much, the total decline will probably be accomplished very rapidly, so that it may be impossible to carry out many "stop-loss" orders at intermediate prices."

    For extra credit:

    The Mandelbrot set discovered 800 years earlier by a mathematician monk: