How Stories Drive the Stock Market (2016) | Hacker News Reader

How Stories Drive the Stock Market (2016)

nytimes.com

55 pointscaminante11 comments

Many people know this, but the sub-text/context is that markets are not efficient.

This is one of the ongoing debates between Schiller and Eugene Fama.

It doesn't follow that we know how to exploit the inefficiency in order to make money, not that anyone here cares about that sort of base mercenary thing.

I got a 16% return on investment from buying Siemens stock two days after Brexit and selling it four days after Brexit. (Actually three weeks after Brexit, but the "profits" came from those two days.) On a large scale and over a long timeframe, the market is very hard to outwit, but it's full of small-scale and short-term inefficiencies.

Counterpoint: Efficient market hypothesis folks would claim that the expected value of all potential Brexit outcomes were already priced into the market value of Siemens, and that you were just on the right side of a dice roll. If you "knew" the outcome, then you should have been buying calls for far greater than a 16% ROI.

I find bubbles to be a better argument against EMH, which EMH advocates claim don't exist.

I was going to make a counter-counterpoint, but you're not endorsing EMH in the first place; so you're the wrong person to argue with.

Bubbles are definitely a counter-argument; I suppose you could argue that they don't refute a long-term efficient market, but they're certainly a strong proof against a short-term one.

You're probably aware of Fama's argument that bubbles are only identifiable in hindsight, and are just reflecting changes in sentiment given new information.

On the other hand, if you've been right with your bubble predictions often enough, maybe there's an argument to be made that you _are_ predicting them. On the third hand, perhaps for every one of you there's another whose predictions are equally wrong, offsetting you.

I'd be curious to know which it is, but I suppose there's not enough data.

These are my thoughts as well -- not enough data. I've had really good luck in 2016 (bought into natural gas during the price-of-oil collapse; bought into safe stocks being panic-sold after Brexit), but I almost feel like I'm living on borrowed time.

I'm planning on writing a book on my strategies (or maybe seeking backing for an actively-managed mutual fund?), but only if I can enjoy 10 years and one full market cycle of success...

The associated paper, for those that desire the "full" version: http://cowles.yale.edu/sites/default/files/files/pub/d20/d20...

For every investor who buys based on what they read, there is another who will buy on fundamental value such as PE ratio, gross margin etc, but if both are selling then yes stock going down is the right direction

Buy on the rumor, sell on the news.

Ask Schiller if he know anybody who drives a pickup truck.

2016 parenthetical would be nice on this title

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