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Opinion
Noah Smith

A Battle for the Stock Market's Soul

Are markets efficient or prone to bubbles? Maybe both.
One phase.

One phase.

Photographer: Danny Martindale/WireImage/Getty Images
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In the 1980s, economist Robert Shiller shocked the world of academic finance with a finding for which he would eventually win a Nobel Prize. He discovered that stock market returns are predictable. 

This flies in the face of our most basic theories and intuitions. If you know that prices are going to go up tomorrow, you buy today, and the price goes up today instead. Only randomly fluctuating prices prevent people from taking easy profit opportunities in the market.