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Re: Marxist Fianancial Advice



Sabri Oncu wrote:

One typical example you would find in many a papers is the Royal Dutch/Shell
phenomenon. Here is what Thaler says about it:



Consider the example of the Royal Dutch/ Shell Group, as documented in Rosenthal and Young (1990) and Froot and Dabora (1999). Royal Dutch Petroleum and Shell Transport are independently incorporated in, respectively, the Netherlands and England. The current company emerged from a 1907 alliance between Royal Dutch and Shell Transport in which the two companies agreed to merge their interests on a 60/40 basis. Royal Dutch trades primarily in the United States and the Netherlands and is part of the S&P 500 Index; Shell trades primarily in London and is part of the Financial Times Stock Exchange Index. According to any rational model, the shares of these two components (after adjusting for foreign exchange) should trade in a 60-40 ratio. They do not; the actual price ratio has deviated from the expected one by more than 35 percent. Simple explanations, such as taxes and transaction costs, cannot explain the disparity.

<<<<

But is that because market prices aren't reflecting buying and selling, or because the buyers and sellers are irrational? Like I said, market prices can be efficiently reflecting nonsense.

Doug



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