I guess nobody here has taken that course?
Nothing does better than the prime rate? You mean in terms of interest rate? Isn't the definition of the prime rate the best you can get?
In the long term? What does that even mean here? Can I get lucky and do better than the prime rate, whose definition is the best interest rate you can get?
Saying this knowledge is basic Mathematical Finance is also very condescending. I haven't taken "that course" but I feel from your tone that you took a 101 college course which now guides your entire mode of economic thinking.
Elaborate on your statements.
Using a binomial model (essentially a random walk) and using 'the formulas' for portfolio calculation, you will find that in the 'long term' (in math, infinite, but 'a long time' in the real world') you will find that no investment portfolio will beat the Prime Rate, as this is what all returns are based off of.
It was just the results I saw from the course. I know one can get 'lucky' and beat the Rate, but overall, as a zero sum game, someone else has to lose and overall the group rate of return is calculated as...the Prime Rate.
Sorry for being condescending sounding; I thought this was common knowledege given it's taught in introductory finance.
Admittedly, we can always just say "we're not in the long run," I'm not sure how useful that is.
I'm not certain what model exactly you're talking about, but I think it also probably misses technological change as a real source of growth independent of any monetary musings.
An Efficient Market Theorist sees a $100 lying on the ground, and passes it by saying "If that existed, someone else would have picked it up by now!".
Milton Friedman, in the apocryphal story. And back in my days it was $20 :-)
I've seen data showing the overall stock market returns 3% after taxes and inflation for any period longer than about 20 years.
I don't agree that someone else has to lose in order to gain. That assumes zero growth, which is not the case.
I think people don't know what you're talking about because you seem to just be repeating stuff you heard in a lecture hall 10 years ago when the world is vastly more complicated.
Judging from your mentioning MC and binomial walks, you might be looking at derivative pricing, and be confused by the facts that
- derivatives are zero-net-supply securities, thus they returns are necessarily zero-sum (minus the exchange/bank's cut)
- derivatives can be priced using the risk neutral measure (after a change of measure, Girsanov's theorem, yada yada yada) in which mu, the drift of all risky assets, equals r, the risk-free rate. However, that's not statement about how mu is in the real world, but basically an abbreviation for an arbitrage-by-replication argument.
At any rate, derivatives pricing is the domain of arbitrage pricing models, while here we are looking at equilibrium models (which consider investors' preferences/utility, unlike arb models).