Are Investment Markets Rational And Efficient?

I’m always happy to pass on great info...and this is great info! I’ve included a few snippets below lifted from the full article.

In the 1960s celebrated American economist Eugene Fama conceived his Efficient Market Theory (EMT), a hypothesis which promoted that investment markets are ‘informationally efficient’ – that all publicly available information is rationally processed by investors and reflected in the price of a security or asset.

EMT in the stock market

With thousands of investors processing information it may seem impossible for investors to identify materially mispriced stocks.

For average investors, this may be so, but as the stock market represents a highly liquid asset class it tends to overshoot fair value both at the peak and the nadir of the market cycle.

Residential property: an imperfect market

We know that residential property is an imperfect market, and here are four of the reasons why:

Not exclusively an investment market –

While in the stock market all securities are held by investors, in property around two thirds of properties are retained by owner-occupiers. ‘Mums and Dads’ are more likely to price assets emotionally than (theoretically) rational, professional investors.

Market cycles –

Just as the share market is ruled by fear and greed, the property market is ruled by human emotions and thus moves in cycles.

Investors should look to buy counter-cyclically when bargains abound.

Do you need more detail on this subject? Head on over to the full article https://propertyupdate.com.au/are-investment-markets-rational-and-efficient-pete-wargent/ for more ideas and perspective. Afterwards, why not drop me an email to share your thoughts [email protected]; or call me on (0402) 024-625.