Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
Howard Marks- The Search for Market Inefficiencies
Excellent read for a summary that appeared earlier.
I do think there are many forms of inefficiency than just information propagation. This is a very simplistic model of market efficiency.
Investor action depends on a number of factors in addition to information availability - models to fill in information gaps, inertia in making decisions, liquidity of assets to be traded, availability of capital, behavioral psychology, etc.
For example, individual investors can move in or out of a liquid asset faster than large mutual funds can even when both receive the same information at the same time. How can one assume market efficiency in such a situation? This arbitrage in nimbleness over the investor universe is what causes momentum trading possible. One might argue it is market efficiency in the long term, not short term but momentum effect is persistent over long periods.
What is true however is that the same mechanistic formula to exploit inefficiency will not last forever. But that is quite different than saying markets are efficient. New inefficiencies open up all the time. Without it, there would be no trading or price discovery.
Comments
I do think there are many forms of inefficiency than just information propagation. This is a very simplistic model of market efficiency.
Investor action depends on a number of factors in addition to information availability - models to fill in information gaps, inertia in making decisions, liquidity of assets to be traded, availability of capital, behavioral psychology, etc.
For example, individual investors can move in or out of a liquid asset faster than large mutual funds can even when both receive the same information at the same time. How can one assume market efficiency in such a situation? This arbitrage in nimbleness over the investor universe is what causes momentum trading possible. One might argue it is market efficiency in the long term, not short term but momentum effect is persistent over long periods.
What is true however is that the same mechanistic formula to exploit inefficiency will not last forever. But that is quite different than saying markets are efficient. New inefficiencies open up all the time. Without it, there would be no trading or price discovery.