Saturday, October 11, 2008

No atheists in foxholes

On Friday, [Robert] Shiller told me of a conversation he had with an economist friend of his. The man had spent his entire career advocating the efficient market hypothesis, which posits that all known information about a stock is already priced into it. But with the market in collapse, the economist sold all his stocks. “I feel like a Christian Scientist who has come down with appendicitis,” he told Mr. Shiller.
--Joe Nocera, NYT, on how deeply the efficient market hypothesis goes against our intuitions


Jess Austin said...

Maybe he sold because of his belief in an efficient market? Someone who believes this is a short-term irrational episode would be buying right now (and some big investors are). That this guy would sell for very low prices, could be because he can't imagine the market being wrong about those prices? He's not sure the market was right before, but he's sure it is now.

He doesn't sound like someone who is stopping losses while looking for a bottom. The simpler explanation may just be that his appetite for risk is different than he previously realized.

James Choi said...

Based on the quote, those are not the interpretations he had of his own actions.