I transcribed A Symposium with 2013 American Nobel Laureates at Embassy of Sweden, Washington - YouTube starting at 54:45. Martin Karplus (Chemistry)  challenges Eugene Fama.

Look at how the stock market fluctuates over the last six months. It keeps going up and down like that [Karplus swings his left hand up and down.] Obviously these are short-term fluctutations. One day something happens in the government, and the stock market goes down by 200 points. Two days later, it goes up by 300 points. So there is obviously some instability built into the stock market that if people were able to calculate it they would get very rich. But my impression is very few people are able to do that. So what understanding of the stock market do you really have? IF ONE WANTS TO CALL IT A SCIENCE...If there are these...I mean I don't invest very much, but I see these fluctuations. They're unbelievable and they make zero sense to me. Maybe they make sense to you, and so it's a very unstable system.

Obviously Karplus is insulting the three economic Laureates and Dr. Fama in particular.

Fama responds quite elegantly

The empirical implication of your statement is the variance of price changes over multiple days should be less than the multiple of the variance over a day. That’s what you mean when you say price changes are volatile. But that's not true. So your presumption was factually incorrect.

The moderator, AAAS CEO Alan Leshner, then saves Karplus from what was about to be an utter thrashing by Dr. Fama.

I haven't done econometrics since 2013. Can someone pls explain Fama's rebuttal in simple terms?

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    $\begingroup$ You don't know what Fama means, but you are somehow sure that it was an "elegant" answer that might have lead to an "utter thrashing." $\endgroup$ Commented Jul 13, 2020 at 12:19

1 Answer 1


Thanks whoever asked this at r/econometrics.

abcxyd 9 days ago 

I don’t see how Fama’s reply relates to the initial comment at all. But what he means is if you calculate price changes over a longer horizon (e.g. a week), the variance of those price changes is not necessarily lower than the variance of daily price changes when the variances converted to the same frequency. I.e. the annualized variance of weekly price changes is not necessarily lower than the annualized variance of daily price changes. Here’s a well known paper that demonstrates this: https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1540-6261.2012.01722.x.


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