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March 3, 2007
Myron Scholes on Market Disruptions
Hedge fund guy and Nobel prize winner Myron Scholes making some observations on large information sets and market hiccups in the context of last week's stock market entertainment:In chaotic times, speculators ... doubt their models. They want to reassess. In today's ever more globalized and complex economy, "the information set is huge, it's gigantic." As a result, "decision time becomes elongated" and speculators hold back their capital just when their services are most in demand. The lack of liquidity itself then becomes a factor in asset pricing, leading to swift, sharp drops in values.I think he is right, but then again, my sense is that in every era we feel like the information set is gigantic. It's all relative after all. When you have no computers, keeping track of a few newspapers and sets of financial filings could feel immense; when you have megabyte connections and multicore processors then you trip the gigantic at much higher levels.
[via WSJ]
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poor guy just wont give it up. how many times can a genius be dead wrong before he stops being a genius.
i mean i live and breath bs or bsm. but these liquidity issues are in a large part due to everyone using some sort of normal distribution framework for ALL of their calculations.
and this information overload is a bright red herring. the subjective inputs have a much bigger inpact than information
he can take his 'we make money cause other people are stupid' attitude as shove it
I wonder what Doc Scholes would think of Monitor 110 (www.monitor110.com). 'Masturbatory Overload' comes to mind, but thats just me.