Are markets efficient? A discussion between Thaler and Fama

An earlier blogpost reported the award of the Nobel Prize in Economics 2017 to Richard Thaler of the University of Chicago for his work on behavioural economics.

In this video of the Chicago Booth Review, Thaler, a vehement critic of the idea of market efficiency, engages in an interesting discussion with Eugene Fama, another University of Chicago Nobel Prize laureate (2013) and widely regarded as “the father of the efficient-market hypothesis”.

In his previous work, Eugene Fama introduced the model of “efficient capital markets”, i.e. markets that fully reflect all available information (see the paper: “Efficient Capital Markets: A Review of Theory and Empirical Work”). The most common version of this model that is defended today, is the “semi-strong version”, according to which all publicly available information is incorporated in stock prices (but information that is held privately by some investors not necessarily so).

Thaler has spent much of his time writing about how people are not completely rational, an assumption that strongly underpins the efficient-markets hypothesis, for example in his book “Nudge” (together with Cass Sunstein) and in his book “Misbehaving: The Making of Behavioral Economics”.

In the discussion with Fama, Thaler distinguishes two aspects of the efficient-markets hypothesis: “One is whether you can beat the market. The other is whether prices are correct.” On the first aspect, Fama and Thaler are in agreement: generally, even professional mutual fund managers fail to consistently beat the market, after subtracting management costs (Michael Jensen from Harvard University first provided evidence for this hypothesis in this paper).

Fama and Thaler do disagree (and rather strongly) about the second aspect, however. In the video, Fama argues as follows about the efficient-market hypothesis: Continue reading “Are markets efficient? A discussion between Thaler and Fama”

Nobel Prize Economics 2017 awarded to Richard Thaler (University of Chicago)

Prize awarded for his contributions to behavioural economics

The Royal Swedish Academy of Sciences has decided to award the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2017 to Richard H. Thaler (University of Chicago), “for his contributions to behavioural economics”. 

An entertaining interview of Richard Thaler by Malcolm Gladwell  on the implications of behavioral economics on how we think about the world, from our personal lives to business to society can be seen here.

Richard H. Thaler has incorporated psychologically realistic assumptions into analyses of economic decision-making. By exploring the consequences of limited rationality, social preferences, and lack of self-control, he has shown how these human traits systematically affect individual decisions as well as market outcomes. Continue reading “Nobel Prize Economics 2017 awarded to Richard Thaler (University of Chicago)”

12 months of Corporate Finance Lab, 12 cases by the European Court of Justice

This blog celebrates today its first anniversary. Quite a few of the over 200 blogposts were in English. Many posts flagged and/or discussed, often ahead of the herd, cases by the European Court of Justice:

Continue reading “12 months of Corporate Finance Lab, 12 cases by the European Court of Justice”

Trust and freedom of establishment: some preliminary observations on the CJEU’s ruling in the Panayi Trust case

Trusts can be considered to be ‘entities’ which can come under the scope of the freedom of establishment

On September 14th 2017, the CJEU ruled on the Panayi Trust case (Case C-646/15), to which we have already referred in an earlier blog post. The CJEU’s ruling in the Panayi Trust case will provide ample opportunity for debate and reflection in the near future, especially with Brexit coming into view.

However, in this blog post we will restrict ourselves to a brief presentation of the case and some first observations regarding the question whether trusts can indeed come under the scope of the freedom of establishment. Continue reading “Trust and freedom of establishment: some preliminary observations on the CJEU’s ruling in the Panayi Trust case”

A uniform European regulation on the law applicable to the effectiveness of a cross-border assignment of a claim: no longer the elephant in the room?

A post by guest blogger Louis Coussée

The assignment of a claim is an important legal instrument for the financial market. It enables both simple transfers of claims from one person to another and complex financial operations used to finance the business activity of firms, such as financial collateral arrangements, factoring and securitization. Furthermore, it enables the availability of capital and credit across borders and allows small and medium enterprises (SMEs) to obtain credit at affordable rates. In a globalizing context, such cross-border transactions are a daily routine.

Substantively, there exists no harmonization in the field of the assignment of a claim on EU-level. The question which law is applicable to the assignment of a claim, therefore, can have a huge impact on the outcome of a dispute, when national jurisdictions apply different rules to make an assignment effective against third parties. The Rome-I Regulation contains a provision on the applicable law to the assignment of a claim. However, art. 14 of the Rome-I Regulation does not provide an answer to the most important question, i.e. which law governs the effectiveness of an assignment against third parties. This question is widely discussed and the topic of choice-of-law rules for the assignment of claims in financial services and markets is considered to be one of the most complicated, challenging and arcane. Continue reading “A uniform European regulation on the law applicable to the effectiveness of a cross-border assignment of a claim: no longer the elephant in the room?”

Instrument of the European Law Institute: Rescue of Business in Insolvency Law

Since the global financial crisis, the topic of business rescue ranks top on the insolvency law related agenda of both the EU and national legislators faced by a rapid growth of insolvencies, which highlighted the importance of efficient mechanisms for dealing with financially distressed, but viable business. For the ELI (European Law Institute), this fueled the momentum to launch an in-depth project on furthering the rescue of such businesses across Europe.

Continue reading “Instrument of the European Law Institute: Rescue of Business in Insolvency Law”

Draft Dutch bill on pre-insolvency proceedings

Yesterday, the Dutch government published a new draft bill seeking to introduce pre-insolvency proceedings in the Netherlands (a previous post on pre-insolvency proceedings can be found here). The draft bill can be found here. An unofficial English translation is available at the website of RESOR.

Continue reading “Draft Dutch bill on pre-insolvency proceedings”