Market efficiency is a central issue in asset pricing and investment management, but while the level of efficiency is often discussed, changes to that level are largely absent from the discussion. I argue that over the past 30+ years the markets have underperformed information on the relative prices of common stocks, especially in the middle of nowhere. I offer three theories as to why this has happened, arguing that technology such as social media is probably the main cause. Looking ahead, investors willing to take the other side of this volatility should be reasonably rewarded with higher expected returns, but also greater risks. I conclude with some ideas for making logical, divisive strategies easier to stick in the midst of an underperforming market.
From a new paper by Clifford S. Asness.
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