Re: Closed - End Fund Puzzle

[Kevin Quinn <kquinn@xxxxxxxxxxxx>]

Paul: the true fundamental of this asset--the postage stamp-- is zero
(ignoring consumption value)! It's zero whether the world's ergodic or
nonergodic, since the discounted value of all future "dividends" is zero.
If it has a positive price, the entire amount is a bubble. I don't see
this as a counterexample to Barkley's defense of the notion of an asset's
fundamentals at all. On the contrary, it's a very good illustration!



On Tue, 26 Sep 1995, Paul Davidson wrote:
>
> 	My best illustration that liquid securities traded on exchanges
> have no "true fundamental" such as the "real marginal product of capital"
> involves postage stamps. A former colleague of mine had a VERY valuable
> postage stamp collection and he traded stamps on a reasonably organized
> market. (It was so valuable that he had to keep it in a bank vault and
> hence it was very in convenient to see -- as a pastime -on rainy Sunday
> afternoons. Consequently its utility for visual pleasure was very small
> relative to its carrying costs. )
>
> Now what sets the value of a used postage stamp in such a market?
> The true fundamental is only what people think others will be willing to
> pay in the near future. (In the case of postage stamps there is no
> nominal cash flow due to quasi-contractual dividends or contractual
> interest payments plus principle redemption -- to provide some nominal
> anchor to the nominal market value of objects of speculation.)  To talk
> about true fundamentals involving liquid assets that are held primarily
> for their liquidity (resalability) in markets organized by a market
> maker who does Not guarantee an unchanged spot resalable price over time
> -- is really straining both credulity and  language.
>
>
>