Although the mainstream media has not drawn the correlation yet (and likely never will), Finance may be at a critical tipping point.
This past week, the Nobel Prize Committee awarded the Nobel Prize in Economics to three people – Eugene Fama, Lars Peter Hansen and Robert Shiller.
Of course, Fama is well known to anyone who has ever studied for the CFA program. He is the creator of the Efficient Market Hypothesis (EMH) which posits that the markets are a random walk of sorts. The EMH also posits that market prices are a reflection of all available information. I regard the EMH as a total joke and if you stop to consider the tech bubble and most recently the sub-prime mortgage related bubble you may be inclined to agree with me.
By awarding the Nobel Prize to a group of three people, I think we are seeing a shift or a tipping point. Fama is being given a pat on the back for his years of hard work and is being shown out the front door. But a new school of thought is being quietly ushered in through the back door and that is where co-recipient Robert Shiller fits into the mix. You may know Shiller for the Case-Shiller House Price Index. But, there is more to him. You see, he is best known for his years of work on Behavioral Finance which dictates that human emotion and exuberance play a role in market volatility, bubbles and crises. The third co-recipient is Lars Peter Hansen who is being lauded for his years of work on econometric modelling.
I am right glad to see the field of Finance arrive at this tipping point. You see, the stuff that I blog about and the material in my 3 books is basically a subset of Behavioral Finance. Planetary aspects and lunar events influence our emotions which in turn influence price action across markets. The effects of this cosmic influence can be measured with square root math and with esoteric techniques such as the Golden Sequence. W.D. Gann understood all of this way back in the 1920s. But, sadly sometime in the early 1950s after the markets had enjoyed a post WW2 run-up, the academics took charge with ridiculous notions that included the Efficient Market Hypothesis (EMH) and Modern Portfolio Theory (MPT).
Thank You Nobel Prize Committee for a big step in the right direction.
I sincerely hope that going forward great strides can be made by psychologists, biologists and the like to enhance our understanding of how events in our solar system and human emotion connect to market price and investor behavior.