Wednesday, April 15, 2009
Taleb - your 15 minutes is up
Finance Professor posts a couple of links about Nassim Taleb (the black swan dude) that criticize some of Taleb's recent prognostications. Although Finance Professor likes Taleb, I think Taleb has had his 15 minutes of fame. We get it! Returns have fat tails. This isn't new information. What was new was that Taleb had the notion to write a book on it. Anyhow, his rants on academic economists are childish and frankly tiresome.
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Well, there is a bit more to Taleb's arguments than fat tails - though that is certainly an element of his arguments.
ReplyDeleteI think the heart of his points is that we have fat-tailed return distributions AND that correlations for almost all risky assets go to 1.0 in times of crisis. So, you get no real benefit from diversification during the times you most need it. Taleb would probably even argue the fat-tailed portion of the description above. He would likely claim that return distributions are non-normal enough that we shouldn't even describe them in those terms.
Both of those points have been made before in the academic literature, though never as colorfully has Taleb has made them.
He has certainly not made any friends in the academic community with his condescending remarks and attacks on academia as a whole.
Thanks for the comment. The correlation going to 1 in times of crisis is something LTCM found out their detriment!
ReplyDeleteYou get it??!! Then why is the system melting down. The whole point is that you DON'T get a damn thing, not even after decades of data.
ReplyDelete@Anon... Uh, yes actually I do get it. I and most finance academics know that the world doesn't have to behave according to the normal distribution. We knew this before Taleb came along, but despite his rantings most folks on wall street didn't get it.
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