As an economics undergraduate, I also worked on a part-time basis in Cambridge, Massachusetts, for a company that was advising customers about portfolio decisions, writing reports.
Everyone recognizes that's a joke because obviously the number and shape of the pieces doesn't affect the size of the pizza. And similarly, the stocks, bonds, warrants, etc., issued don't affect the aggregate value of the firm.
I can't speak for them, of course, but I believe that most economists would accept the view that, while you sometimes can make a score by sheer luck, you can't do it constantly, unless you're willing to put the resources in.
I had some of the students in my finance class actually do some empirical work on capital structures, to see if we could find any obvious patterns in the data, but we couldn't see any.
Most people might just as well buy a share of the whole market, which pools all the information, than delude themselves into thinking they know something the market doesn't.
My research interests since then have shifted strongly towards the economic and regulatory problems of the financial services industry, and especially of the securities and options exchanges.
Of course. I favor passive investing for most investors, because markets are amazingly successful devices for incorporating information into stock prices.
What happened after publication of our paper was that, for the next 40 years, people said, all right, we now know the answer to the capital structure question under ideal conditions.
