According to Fischer, when there is a lack of correspondence between the data and the theory, it is safer to assume that the theory is correct implying that Wells Fargo was right to prefer the market index fund suggested by the CAPM rather than the low-beta fund implied by the data.
Besides, Fischer had the will to improve his theory using recalcitrant experience referring to stimulating theoretical work with empirical anomalies. He criticized econometrics models because of the exclusive focus on data combined with less theoretical considerations. He said: “A crooked yield curve or unexplained stock price is suggestive, but I generally want to know why these patterns exist before I trade”.
A for Neo.
ReplyDeleteBlack chose his theory over the data. In retrospect, this isn't right or wrong, it's just a choice.
Extra Credit for the first person to comment with a decent definition of "recalcitrant experience".