Palantir & Uber meet the S&P500 inclusion criteria - Now what?

[@h4446j]

But shouldn't more investment funds tracking the market index buy the stock after it's included resulting in more demand and thus higher price?

[@kostadin_ristovski]

That is the idea behind the index effect.

[@rowanwood5397]

It would be interesting to know if many situations like this indicate that the market is more and increasingly efficient. Such would support what Munger says regarding investing being more difficult. And I think this is plain to see but it might also be beneficial to find the evidence to support it. GV

[@kostadin_ristovski]

In general, the tests for market efficiency are related to testing certain strategies to earn excess returns. Based on that rationale, this example, as well as the January effect, do prove the market has become more efficient. However, more efficient when it comes to these strategies. Personally, I don't think the market is efficient in the short run, which is why we see crazy (irrational) price increases/decreases (Zoom, Nvidia, Meta, and many more), but it is efficient in the long run. Eventually, the prices reflect the fair value. The behaviour plays a big role in all of this, and I don't think that will ever change. With that said, I don't have a good idea on how to test market efficiency as a whole.

[@rowanwood5397]

@@kostadin_ristovski Yes, I generally agree, however, similarly, on a fundamental philosophical level, I am not a proponent of the efficient market hypothesis. On a casual level, I agree that markets move "toward efficiency" over time. But, if this is so, then doesn't it nullify the theory itself? (Reversion to the mean, regression lines, show that markets eventually produce "fair prices".) Anyhow, I think it is interesting to study movements toward or away from efficiency (with "efficiency' being defined as rational and stable pricing). I wonder if there is more or less volatility overall, generally, in the US stock market. If there is more volatility, then does this disprove the idea of markets becoming increasingly efficient?