27. Market Efficiency

Some market participants argue that markets are efficient. What do they mean and what are some of the opinions?

Category:

Education

Tags:

• saving
• investing
• money
• markets
• efficiency
• savingandinvesting.com
• Michael
• Fischer
• business
• economics
• finance

[Adex132]

well done :) I m a post-graduate studying corporate finance and you clarified a few points my text couldnt explain in non specialized lingo. Cheers.

Do you believe in market efficiency?

[savingandinvesting]

In my opinion investors make markets efficient through their actions - in developed markets this takes place very quickly w.r.t. publicly available information as there are many market participants. Therefore markets are effectively quite efficient to what we know at any point in time, but partly because many investors effectively act quickly to make prices reflect new information. In markets with less participants (even outside of the securities area) this process would not be as efficient. Thx

[beatitudes79]

What about the case of value investors, such as Buffett, who have outperformed the market? Don't they use publicly available financial statements to determine which stocks to select? Thanks for the vids - they are very helpful.

[savingandinvesting]

Buffett clearly exceptional investor - also today because of position, shown deals, like Goldman Sachs recapitalization that others not shown. Has also been very active in private equity markets where more scope to add value/markets much less efficient (noted in newsletters at times). For markets to be efficient, have to be some investors buying low, selling high to bring back to efficient. Question is whether one investor can be one to realise inefficiencies consistently with so many players.

[Kalamolng]

How is the US market fairing today? W/ its real estate woes?

[savingandinvesting]

I think that this is definetely a medium term overhang - today the unemployment numbers came out and they also weaker with rate rising to 5% in December from 4.7% in November. Makes a case as always for long-term approach, diversification (internationally and between asset classes), dollar cost averaging, tax tavings etc. - More commetns on forum. Thanks

[therealbuba]

What about Goldman Sachs, they have outperformed the market consistently, prefect trading last quarter.

[qatari5898700]

Great presentation !! , im studying Master in Finance and i got the points from you more than my professor !!

Keep going.

[jayjayray1990]

Insider trading may be classed as illegal, but studies have shown that insider trading actually increases market efficiency since insider actions actually highlight a more accurate view of future company performance. They even improve analyst predictions! So if the role of regulators is to facilitate competition, and ensure that the market stays efficient, why regulate insider trading? When it actually helps an efficient market. Excess returns maybe achieved in the short run but not in long run.