Re: Let's be more moderate

From: Breathtakingly dishonest
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Date: 16 Aug 2007
Time: 12:50:03

Comments

I'm not so sure. Thats definitely the standard finance efficient markets view. But are hedge funds really making the market more efficient? How about how LTCM was doing this at first, but then got soooo big that its influence on the market and losses and endangerment to the whole financial system caused the Fed to have to step in. And now with all these highly levered funds chasing a limited numbers of investments (and usually with a long bias), they seem to have caused overly tight credit spreads similar to the equity market overshooting in 2000. And the guy I know who started such a fund was interested in his income and not so much about improving the financial markets. The efficient market hypothesis seems like a lot of those ideas from economics in which in individual cases is wrong, but somehow in aggregate is correct. I've often been puzzled by those. Back to Glyn's paper, I think another point is how the leverage in addition to principal/agent issues (see his earlier paper in the FAJ) may lead to increased volatility and financial issues beyond their benefits of eliminating inefficiencies.

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