Economists Believe Markets Are and Are Not Efficient

Two years ago, I compiled a list of deep truths about the markets and investing.

On list my I wrote: “Whatever the issue, your typical finance professor will blame the investing public and urge more self-denial as the solution. Bank on it.”

Over the past few weeks, the IGM Economic Experts Panel has been surveying economists to get a sense of what the consensus is in the profession.

Regarding the stock market the survey found that economists overwhelmingly agree with this statement:

Unless they have inside information, very few investors, if any, can consistently make accurate predictions about whether the price of an individual stock will rise or fall on a given day.

And they overwhelmingly disagree that:

Plausible expectations of future dividends, discounted using a plausible risk-adjusted interest rate, explain well the level of stock prices for recently listed internet businesses in 1999.

Arnold Kling points out this means that economists strongly stand behind weak market efficiency yet disagree with strong market efficiency. Theoretically, there’s nothing contradictory about this even though the vote margin is remarkable.

Still, my explanation is much easier.

Posted by on January 9th, 2012 at 5:58 pm


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