Market Efficiency
Given that the general consensus is that markets are efficient, how can asset management firms and hedge funds make money? Do they promise to beat the market?
Or are investors just investing with them because they have more know-how in terms of portfolio strategy and asset allocation?
markets aren't efficient
Eugene Fama winning the Nobel Prize doesn't mean that there's a general consensus that mkts are efficient.
Yeah, I thought the only general consensus was that Nobel Prizes are a joke.
True. Obama getting one was absurd and undeserved.
The consensus is pretty overwhelming, especially with more recent empirical evidence, that markets aren't entirely efficient. That said, many investment managers will fail to beat the market, and the size of the active management sector may be larger than it really needs to be.
forget the nobel, i think the housing bubble and bust were pretty good evidence that markets are not efficient...
Many jobs in finance wouldn't exist if there were consensus that markets are efficient.
The truth is some markets are sometimes efficient. Arguing whether the markets are efficient is more of an academic entertainment than a practical and useful debate. For most hedge funds, the key is to figure out how to make money when the markets are (not) efficient and how to adapt to current situations. For traditional asset management firms, they just buy and pray (hold). Efficient markets? They don't give a flying fuck. #livelongandprosper
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"over a multi year horizon" =/= "efficient"
I mean, thats a matter of semantics in terms of how one chooses to define effeciency, but for example Fama argues in one of his papers of market efficiency from a long term perspective, in terms of how stock prices respond to information and the even distribution of return anomalies (overreaction and underreaction) over the long term. Anyways the debate has no provable answer so it doesnt really matter. Be more disciplined than other market participants and harvest your profits appropriately.
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