STREET DOGS: Mandelbrot on Joseph and Noah effects
Wild price swings, business failures, windfall trading profits are key phenomena that should matter most to bankers, regulators and investors
Benoit Mandelbrot distinguished between Joseph effects and Noah effects. Joseph effects — seven fat years here, seven lean years there — occurred when markets were evolving gradually. Noah effects were cataclysms. The Flood or the week of September 11 2001, when the New York Stock Exchange closed for five days and fell 7.5% on reopening. Because Joseph effects rule the market most of the time, they are what models measure. But Noah effects make and unmake investors. — Financial Times Price swings, business failures, windfall trading profits, these are key phenomena. In all their drama and power, they should matter most to bankers, regulators and investors. — Benoit Mandelbrot Your mutual fund’s annual report, for example, may contain a measure of risk. It would indeed be useful to know just how risky your fund is, but this number won’t tell you. Nor will any of the other quantities spewed out by the pseudoscience of finance: standard deviation, the Sharpe ratio, variance, correlatio...
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