, Columnist
Overpriced Index Funds Won't Go Away
Markets aren't quite as efficient as academic theory suggests.
Just early.
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Many traders and investors acts as if markets are efficient, meaning that asset prices fully reflect all available information. We see this manifest itself in numerous ways -- how prices rapidly adjust to new information and how few investors manage to beat the broader indexes by picking stocks or trying to time the market.
At least that's the gist of the efficient market hypothesis, which won University of Chicago economist Eugene Fama a Nobel Prize. The problem is that in practice, there are lots of information asymmetries and frictions that make markets somewhat less than perfectly efficient. To reflect this, I started referring to Fama’s thesis as the kinda-eventually-sorta-mostly-almost efficient market theory.