I found this post through a tweet from @wduyck and it’s quite revealing. I had read some press about the original research, but sometimes it’s good that someone from another field of expertise takes a look at research…

Quomodocumque

Let’s say I present you with a portfolio of five stocks,  and ask you to predict each stock’s price one year from now.  You know the current prices, and you know stocks are pretty volatile, but absent any special reason to think five companies are more likely to have good years than bad ones, you write down the current price as your best prediction for all five slots.

Then I write a paper accusing you of suffering from an “end of financial history illusion.”  After all, on average you predicted that the stock values won’t change at all over six months — but in reality, stock prices change a lot!  If I compute how much each of the five stock prices changed over the last six months, and average those numbers, I get something pretty big.  And yet you, you crazy thing, seem to believe that the stock prices…

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