Can markets still be efficient if most investors aren’t even paying attention? Surprisingly, the answer is yes.
US markets are doing much better than markets everywhere else, but no one seems to know why. Yes, there are theories: Perhaps it’s the promise of AI, although it remains to be seen how AI will play out and who will profit. Or maybe valuations are high, and the market will come down. Or … could it be that markets are doing better because no one is really thinking about them all that much?
I know I’m not — because I own passive index funds. And I am not alone. In January, the share of money in passive funds was more than 50%. In 2010, that figure was between 30% and 40%, depending on how you measure it. It could be that markets keep rising because we passive investors just keep buying stocks no matter what the information says.
Continue reading the entire piece here at Bloomberg Opinion (paywall)
___________________
Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
Photo by Maximusnd/Getty Images