Postulate Check

[william the wie]

Axioms

Alpha in Black Scholes defines price movements of the underlying net of the market and Beta (An alpha of 5 means a stock issue will go up 5% v. S&P when the S&P makes no net move for a year.)

Beta is the amplification or diminishing of market moves in the underlying. (A beta.of two means the issue will drop twice as fast and far when the S&P goes down.)

Postulate

Market efficiency of any type will therefore tend to create an inverse relationship between Beta and Alpha.

Therefore

Since Alpha is not backed out of the computation of Beta I think we have a problem Houston. But how big of a problem? Any Idea of how to figure out the size of the problem?

 

[MACAULAY]

Square the Horseshit coefficient in the O. P. and divide by the number of numbskulls on this board.