Warnings that index funds have broken the stock market all imply a threshold: a share of the market at which price discovery fails. Nobody making the argument names it. Owen Lamont, writing in the Financial Analysts Journal, argues that no such number exists short of complete passive ownership, and that what actually determines whether prices stay informative is who is left doing the trading. His case, the strongest peer-reviewed research against it, and what the performance
Most investors assume prices are moved by information: earnings, interest rates, news. A peer-reviewed study of 37 years of Nasdaq data suggests something stranger. The poor returns of speculative 'lottery-like' stocks are concentrated after sunny weather in the cities where the firms are based — and largely vanish after cloudy spells. The finding says less about forecasts than about how quietly mood reaches our decisions, and why rules-based investing exists.
Robin Powell
Jul 96 min read
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