tag:blogger.com,1999:blog-7905515.post447747706114993345..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: Bias vs. CompetenceEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-7905515.post-79161136108788334962008-11-20T08:18:00.000-06:002008-11-20T08:18:00.000-06:00bruschettaboy: clearly the empirical issue is quit...bruschettaboy: clearly the empirical issue is quite complicated, but in any case there is zero evidence in favor of his hypothesis. A firm with market power should generate abnormal profits, which might not necessarily be abnormal returns, so one could argue that returns are not relevant. Interestingly, I have never read that the lower returns of large cap stocks historically was from anticipated market power and thus lower risk, though it is a plausible explanation. But either way, conditional profitability (ebit/assets) is not a function of size.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-28468573032333807352008-11-20T05:37:00.000-06:002008-11-20T05:37:00.000-06:00[Galbraith argued a lot that large firms have a lo...[Galbraith argued a lot that large firms have a lot of market power over competitors and consumers, but the small size effect suggests being large is not a net advantage, but rather a disadvantage]<BR/><BR/>I'm not seeing this at all; surely a lower expected rate of return on large-cap stocks (which aren't the same thing as large firms) would imply a lower cost of equity capital, which is an advantage to the firm?The Rioja Kidhttps://www.blogger.com/profile/06462814606739183471noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-48333758452465330132008-11-19T23:19:00.000-06:002008-11-19T23:19:00.000-06:00Eric, I suggest a couple of distinctions to help s...Eric, I suggest a couple of distinctions to help sort out the "mixed bag" of peer review problems and solutions you mention:<BR/><BR/>1. Distinguish between experimental results that can be repeated versus those that can't be repeated under the same conditions. I think this would roughly correspond to a physical vs. social science distinction. In particular, one could make "hairsplitting nonsense" criticism about a quantitative method used in financial time series data. But a peer questioning whether de Soto's own pamphlets affected the economic outcomes in Peru should be viewed through a different lens, since we can't re-create the initial conditions in Peru pre-de Soto.<BR/><BR/>2. Take your observation about psychologists being interested in behavioral economics to the next level. I personally find reading *outside* of finance to be more valuable in building my human and career capital. Perhaps having peer review come from at least a little bit outside of one's field would be helpful. A psychologist could review a behavioral economics paper, or a mathematician review a finance paper. The problem, however, goes back to your comment about wasting your human capital and time. How would a psychologist advance her career by reviewing economics papers?Anonymousnoreply@blogger.com