Mandelbrot (Chaos Theory) Taleb (Black Swan) on markets

How far down the rabbit hole do you want to go?
http://modern-economic-crisis.blogspot.com/
http://ericbs5247.blogspot.com/

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Tags:

• Mandelbrot
• Chaos Theory
• Taleb
• Black Swan
• Financial Markets
• Entropy
• Financial Crisis
• Economic Crisis
• Economic Chaos
• Markets
• Finance
• Information Theory
• Economics
• Stock Market
• Derivatives
• Chaos
• Fractals

[SalsaTiger83]

He's been predicting a crash for years... yeah I am predicting another crash... somewhere in the next 20 years... and then if happens I am a celebrated financial genius too....

[damibo345]

@IndexFundsAdvisors You're right, the EMH holds for a variety of underlying distributions. But you're missing the point.

The EMH requires the underlying probability distribution to be STATIONARY. That's the key that so many miss. There is no magic probability distribution that asset returns conform to - the existence of long-term autocorrelations in returns proves this.

This observation destroys the underpinnings of MPT, b/c mean-variance optimization becomes sub-optimal.

[Kurtlane]

I am not an economist, but I have tremendous respect for Mandelbrot.

On the other hand, globalization is not all that new. If we look at the very beginning of 20th century, we'll see the amount of international trade and other factors that make up globalization at almost modern levels.

And then there was WWI, and it was all gone.

So hopefully it's not going to get worse than great depression plus WWII, combined.

Not that this is so reassuring.

[Gago559]

this is a positive development for human mind. Problems are good as long as they dont kill you. (I love that guye)

[dhead64]

@IndexFundsAdvisors With the feedback that is not only possible but ubiquitous in modern trading, spectacular collapses such as LCTM will continue to happen. One major thing that was not counted on as a risk factor in their model was the effect they themselves were having on the market they were analysing, and the subsequent creep into chaotic feedback that ensued.

[destiny86510]

@IndexFundsAdvisors Something tells me Ken French either did not read or understand The Black Swan. Risk and return themselves are almost impossible to assess in most situations. And reasonable distribution of returns under which model specifically? I can't believe people are so quick to forget the whole Long Term Capital Management debacle.

[mtrinhy]

1:32 What the fuck is with the reporter's line of questioning... That question trying to make it look like the interviewee is saying that it's worse than the american revolution is just the same kind of trash over-sensitised crap that you see in many mainstream media news these days. They should stop doing this kind of shit. Makes them look so fucking stupid.

[originalmiller]

Why do you think the banks are consolidating? Why do you think corporations are consolidating? Government gets in the way of the natural order that comes out of nature. Why? because they are working with different principles. Austrian economics explains this.

[IndexFundsAdvisors]

From Ken French: The possibility of extreme outcomes is certainly important for things like risk management, option pricing, and many complicated "arbitrage" strategies... None of this implies, however, that the existence of outliers undermines modern portfolio theory or asset pricing theory. And the central implications of modern portfolio theory and asset pricing—the benefits of diversification and the trade-off between risk and return—remain valid under any reasonable distribution of returns.

[IndexFundsAdvisors]

From the Fama French Forum: Eugene Fama: Half of my 1964 Ph.D. thesis is tests of market efficiency, and the other half is a detailed examination of the distribution of stock returns. Mandelbrot is right. The distribution is fat-tailed relative to the normal distribution. In other words, extreme returns occur much more often than would be expected if returns were normal. However, for passive investors, none of this matters. IFA dot com says all investors should be passive.