50th Anniversary Issue of The Journal of Portfolio Management, Forthcoming
AQR Capital Management, LLC
Abstract
Market efficiency is a central issue in asset pricing and investment management, but while the level of efficiency is often debated, changes in that level are relatively absent from the discussion. I argue that over the past 30+ years markets have become less informationally efficient in the relative pricing of common stocks, particularly over medium horizons. I offer three hypotheses for why this has occurred, arguing that technologies such as social media are likely the biggest culprit. Looking ahead, investors willing to take the other side of these inefficiencies should rationally be rewarded with higher expected returns, but also greater risks. I conclude with some ideas to make rational, diversifying strategies easier to stick with amid a less-efficient market.
Asness, Cliff S., The Less-Efficient Market Hypothesis (August 30, 2024). 50th Anniversary Issue of The Journal of Portfolio Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4942046 or http://dx.doi.org/10.2139/ssrn.4942046