Could be just my own prejudice, but aren’t MBA courses anywhere best avoided?

This passage :

"market can be simultaneously efficient and mispriced if investors’ valuation errors are not independent (i.e. if all publicly-available information is immediately discounted but not accurately interpreted)."

is about as confused as it is possible to be about market efficiency concepts. In the words of the title of Samuelson’s original paper on the subject (from whence, frankly, it has been downhill all the way for efficient markets), "Properly Anticipated Prices Fluctuate Randomly".

If there are systematic errors in pricing, then there is predictability in prices, and therefore there is some arbitrage strategy which creates positive profits with positive probability and negative profits with probability zero (over a finite time horizon, and with the appropriate boundary conditions).

The trouble is that the concepts of market efficiency being thrown aobut here are actually defined rigorously in the same way in which the laws of motion are defined; as statements about (stochastic) differential equations. Once you take them out of that context, you allow all sorts of sloppiness and room for bullshit to creep in. Kamm’s comments are absolutely typical of the sort of thing that bright MBA students drag up; they want to use all these big and fancy words, and carry the air of intellectualism, but they don’t really want to hit the books, grind through learning stochastic calculus and tackle the theorems of continuous time finance.

(in passing, he also appears to believe that Eugene Fama only wrote two papers in his life, so if you’re not citing one, you must be citing the other) Grrsssshhfffft.

Kammikaze – to fearlessly kill a thread using one seemingly endless comment split into three and six postscripts, with no regard for personal safety or the ability of readers to make it through to the end alive.