Are Financial Markets Efficient? - Raghavendra Rau

Watch the Q&A session here: • Q&A: Are Financial Mar...
One of the crucial ideas in finance is that markets are efficient - that they fully reflect all available information. If so, what about market bubbles?
Over the last year, people have been willing to pay exorbitant amounts for extremely odd assets such as Non-Fungible Tokens, meme stocks etc. Why do they do this?
This lecture will explore some investors’ systematic behavioural biases, and how these can be used to predict returns.
This lecture was recorded by Raghavendra Rau on 10th June 2024 at Barnard's Inn Hall, London
Raghu is the Mercers School Memorial Professor of Business
He is also the Sir Evelyn de Rothschild Professor of Finance at Cambridge Judge Business School.
The transcript of the lecture is available from the Gresham College website:
www.gresham.ac...
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[@ufuksenol2005]

Start early with diversified investments in stocks, bonds, and real estate. Maximize contributions to tax-advantaged accounts like 401(k)s and IRAs. Regularly review and adjust your strategy to ensure security....

[@katiekilbo]

Very possible! especially at this moment. Profits can be made in many different ways, but such intricate transactions should only be handled by seasoned market professionals.

[@kban77]

An inherent problem with stock markets is that the richer you are, the more you can make. And if you don’t have enough money, you can’t even participate. It reminds me of all the other taxes on poor people. Like how speed fines cost more for poor people relative to their income

[@pillow4casestudies]

that's a poor excuse not to participate, true that you wont make quick cash, but your retirement will be easier, and you can make the lives of your children and grandchildren better, with generational wealth. you have to look at this from percentages, putting aside 25% of your income for 20 years, will make 22% of your income for the rest of your life. some people just have the personality to do it, others will not. (1000€, 25%, 250 €, 7% interest, 20 years = 130 000€, 2.7% taking out, minus 22% tax = 228)

[@matthewleitch1]

I think you are mistaken there. The returns from stock market investment are larger, on average, if you have more money, but only in absolute terms. (Though, if your fees are fixed regardless of deal size then I agree that there is an advantage for well funded people.) There isn't much difference in percentage terms. The example of the speeding fine is different because everyone pays the same in absolute terms but it is different in percentage terms.

[@kban77]

@@pillow4casestudiesmany people literally do not have enough money to participate

[@kban77]

@@matthewleitch1yeah, absolute amounts matter because things we buy arent in percents. If i pnly have 50 cents to invest and make a dollar….i’m not buying lambos. The absolute amounts matter very much!

[@matthewleitch1]

@@kban77 Absolute amounts are important, but that was not my point. My point was that the investment situation is fundamentally different from the speeding fine situation (for the reasons I explained).

[@matthewleitch1]

An efficient market is one where we can't beat the market by knowing more or being smarter. The ceiling has been reached. But to test that, we have to try to beat the market and if we fail all that really proves is that *we* failed. Someone else might still be successful, and if they keep quiet and nobody notices them making a modest living from their discovery then the market might remain 'inefficient' for that clever person for some time. However, if they publish their findings or they become known to others in some other way then prices will soon reflect the new discovery making it no longer a route to riches. This is how markets can seem incredibly efficient and clever even though individual traders don't seem that smart or well informed.

[@matthewleitch1]

Herbert A Simon got a Nobel prize for economics in 1978 and was a leading researcher in psychology too. I think he was there before Kahneman.

[@soutteruk1]

What is all this neoliberal nonsense about markets doing this or that ...? Markets do absolutely nothing. People (remember them?) create a defined (clearly or otherwise) space in which they might do things related to the market. Markets don't do a thing: people do.

[@spacefertilizer]

Markets are just a word for that emergent property you are talking about. Not talking about a market but just of people “doing stuff” obfuscates the matter and makes it impossible to distinguish it from other things “people do”. It has nothing to do with neoliberalism. It’s economy theory.

[@soutteruk1]

@spacefertilizer My use of the word 'things,' I thought, was specific: things economic, financial, monetary, mercantile. You are perilously near to the obfuscatory use of the word 'markets' - a theatre in which people might act specifically mercantile.