From: John Conover <john@email.johncon.com>

Subject: Re: Mahathir's Phobia of Speculators

Date: 20 Apr 1999 18:58:54 -0000

Burkhard C. Schipper writes: > Why do you always take investors as so rational beings? They cognitive > bounded as all other human beings. > Oh, Burkhard, that's the point. Since rational investors are presumed to base their decisions on information, (do diligence, etc.,) and this leads to a logical contradiction, investors do not only behave irrationally, it is impossible for them to do otherwise, implying that a rational investor is an oxymoron. (At least in the sense of the EMH.) I suppose that, (at least as far as the EMH is concerned,) this says that efficient markets are an oxymoron, too. Which would imply that equity pricing can not exhibit fractional Browning motion characteristcs-which is a requirement, if the market is efficient, (and fair.) Meaning that kurtosis in equity price characteristics would be the expected norm, (ie., the variance is not defined, or infinite, and volatility does not equal risk, and price does not equal value.) Now, we understand how the Internet stocks work. John BTW, the concepts of Capital Asset Pricing Model, (CAPM,) depends on paradigm of efficient markets and rational investors, too. So, it, also, is based on a logical contradiction. -- John Conover, john@email.johncon.com, http://www.johncon.com/

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