The Rational Reminder Podcast | RR #183: Market Efficiency Myths and Misconceptions @rationalreminder | Uploaded January 2022 | Updated October 2024, 9 hours ago.
While there is certainly room for rigorous debate regarding market efficiency versus inefficiency, there are many who dismiss Eugene Fama’s Efficient Market Hypothesis (EMH) as an incorrect model without understanding what the implications are or how to test it. In today’s episode of the Rational Reminder Podcast, we tackle some common market efficiency myths and misconceptions using Fama’s 1970 paper on EMH as well as supporting papers by Kenneth French, Lubos Pastor, José Scheinkman, and many others. You’ll also hear about behavioural finance, quantitative investing, human bias, and momentum as they relate to market efficiency before debunking some anecdotal misconceptions about EMH involving Warren Buffet and Renaissance Technologies. In addition to our fascinating main topic for today, you’ll get a glimpse into the four waves of a career in Cameron’s review of The Long Game by Dorie Clark and Benjamin shares some notes and corrections regarding the user cost model from Episode 180: Is Canada Really in a Housing Bubble? We also discuss housing as a depreciating asset, innovation stocks in deep value territory, and the size of innovation platforms relative to global market cap and what that means for investors, plus a whole lot more. Make sure not to miss this jam-packed episode for everything you need to know (and forget) about market efficiency!
Timestamps:
0:00 Intro
1:45 Cameron's Recommendations
18:45 Notes and Corrections on Episode 180: Is Canada Really in a Housing Bubble
29:18 Discussion of Cathie Wood's article: 'Innovation Stocks Are Not in A Bubble: We Believe They Are in Deep Value Territory'
43:40 Market Efficiency Myths and Misconceptions
1:29:55 Talking Cents
Book From Today’s Episode:
The Long Game — amzn.to/3GnbSoX
Links From Today’s Episode:
Rational Reminder on iTunes — itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — rationalreminder.ca
Shop Merch — shop.rationalreminder.ca
Join the Community — community.rationalreminder.ca
Follow us on Twitter — twitter.com/RationalRemind
Follow us on Instagram — @rationalreminder
Benjamin on Twitter — twitter.com/benjaminwfelix
Cameron on Twitter — twitter.com/CameronPassmore
'Innovation Stocks Are Not in A Bubble: We Believe They Are in Deep Value Territory' — ark-invest.com/articles/market-commentary/innovation-stocks-are-not-in-a-bubble
'Efficient Capital Markets: A Review of Theory and Empirical Work' — jstor.org/stable/2325486
'Random Walks in Stock Market Prices' — jstor.org/stable/4469865
'On Persistence in Mutual Fund Performance' — jstor.org/stable/2329556
'Luck Versus Skill in the Cross Section of Mutual Fund Returns' — jstor.org/stable/40864991
'Mutual Fund Flows and Performance in Rational Markets' — jstor.org/stable/10.1086/424739
'The Adjustment of Stock Prices to New Information' — jstor.org/stable/2525569
Planet Money Summer School 1: The Stock Market (NPR) — npr.org/2021/07/28/1021770148/planet-money-summer-school-1-the-stock-market
'Was There A Nasdaq Bubble in the Late 1990s?' — researchgate.net/publication/4756122_Was_There_A_Nasdaq_Bubble_in_the_Late_1990s
'Managerial Miscalibration' — jstor.org/stable/26372532
'Overconfidence and Speculative Bubbles' — https://www.princeton.edu/~wxiong/papers/bubble.pdf
While there is certainly room for rigorous debate regarding market efficiency versus inefficiency, there are many who dismiss Eugene Fama’s Efficient Market Hypothesis (EMH) as an incorrect model without understanding what the implications are or how to test it. In today’s episode of the Rational Reminder Podcast, we tackle some common market efficiency myths and misconceptions using Fama’s 1970 paper on EMH as well as supporting papers by Kenneth French, Lubos Pastor, José Scheinkman, and many others. You’ll also hear about behavioural finance, quantitative investing, human bias, and momentum as they relate to market efficiency before debunking some anecdotal misconceptions about EMH involving Warren Buffet and Renaissance Technologies. In addition to our fascinating main topic for today, you’ll get a glimpse into the four waves of a career in Cameron’s review of The Long Game by Dorie Clark and Benjamin shares some notes and corrections regarding the user cost model from Episode 180: Is Canada Really in a Housing Bubble? We also discuss housing as a depreciating asset, innovation stocks in deep value territory, and the size of innovation platforms relative to global market cap and what that means for investors, plus a whole lot more. Make sure not to miss this jam-packed episode for everything you need to know (and forget) about market efficiency!
Timestamps:
0:00 Intro
1:45 Cameron's Recommendations
18:45 Notes and Corrections on Episode 180: Is Canada Really in a Housing Bubble
29:18 Discussion of Cathie Wood's article: 'Innovation Stocks Are Not in A Bubble: We Believe They Are in Deep Value Territory'
43:40 Market Efficiency Myths and Misconceptions
1:29:55 Talking Cents
Book From Today’s Episode:
The Long Game — amzn.to/3GnbSoX
Links From Today’s Episode:
Rational Reminder on iTunes — itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — rationalreminder.ca
Shop Merch — shop.rationalreminder.ca
Join the Community — community.rationalreminder.ca
Follow us on Twitter — twitter.com/RationalRemind
Follow us on Instagram — @rationalreminder
Benjamin on Twitter — twitter.com/benjaminwfelix
Cameron on Twitter — twitter.com/CameronPassmore
'Innovation Stocks Are Not in A Bubble: We Believe They Are in Deep Value Territory' — ark-invest.com/articles/market-commentary/innovation-stocks-are-not-in-a-bubble
'Efficient Capital Markets: A Review of Theory and Empirical Work' — jstor.org/stable/2325486
'Random Walks in Stock Market Prices' — jstor.org/stable/4469865
'On Persistence in Mutual Fund Performance' — jstor.org/stable/2329556
'Luck Versus Skill in the Cross Section of Mutual Fund Returns' — jstor.org/stable/40864991
'Mutual Fund Flows and Performance in Rational Markets' — jstor.org/stable/10.1086/424739
'The Adjustment of Stock Prices to New Information' — jstor.org/stable/2525569
Planet Money Summer School 1: The Stock Market (NPR) — npr.org/2021/07/28/1021770148/planet-money-summer-school-1-the-stock-market
'Was There A Nasdaq Bubble in the Late 1990s?' — researchgate.net/publication/4756122_Was_There_A_Nasdaq_Bubble_in_the_Late_1990s
'Managerial Miscalibration' — jstor.org/stable/26372532
'Overconfidence and Speculative Bubbles' — https://www.princeton.edu/~wxiong/papers/bubble.pdf
