He's generalizing from banking industry data from 1984-1997, which seems like a tenuous proposition. Recent events suggest the risk in the banking industry was not properly understood during that period.
Further, when examining risk tolerance, it might be good idea to look at an industry where expected returns can't be accurately forecast in advance. Banking seems like an exception to the rule here.
There are a couple of subtle misdirections in the paper. In one place he says: "This risk of failure is considerable. Approximately 10% of all firms in the United States fail each year (U.S. Small Business Administration 1999)." Actually, the risk of failure of banking institutions is in Table 3, which he doesn't textually mention is 1%.
He also mentions "Furthermore, even though the banking is one of the oldest industries, it has been growing at 6.5% rate over the past ten years (roughly three times GDP growth)." which is irrelevant as it's over a different time period than his data and analysis. Further, the chart he inserts directly after this sentence shows a decreasing rate of entry over his studied period. Also, notice the numbers: this whole paper is premised on the entry of between 50 and 400 new companies per year.
He's generalizing from banking industry data from 1984-1997, which seems like a tenuous proposition. Recent events suggest the risk in the banking industry was not properly understood during that period.
Further, when examining risk tolerance, it might be good idea to look at an industry where expected returns can't be accurately forecast in advance. Banking seems like an exception to the rule here.
There are a couple of subtle misdirections in the paper. In one place he says: "This risk of failure is considerable. Approximately 10% of all firms in the United States fail each year (U.S. Small Business Administration 1999)." Actually, the risk of failure of banking institutions is in Table 3, which he doesn't textually mention is 1%.
He also mentions "Furthermore, even though the banking is one of the oldest industries, it has been growing at 6.5% rate over the past ten years (roughly three times GDP growth)." which is irrelevant as it's over a different time period than his data and analysis. Further, the chart he inserts directly after this sentence shows a decreasing rate of entry over his studied period. Also, notice the numbers: this whole paper is premised on the entry of between 50 and 400 new companies per year.