Can anyone beat the stock market? Can you time it?

 

In this episode, I speak with Stephen Ngao about the debate in the investing world between behavioral finance and the efficient market hypothesis. The efficient market hypothesis poses that the market is accurately priced at all times and that no investor can beat the market. Opponents argue that the irrationality of investors creates opportunities to benefit from temporary mispricing in markets.

 

We touch on:

-defining market efficiency

-assessing the current degree of efficiency in the stock market

-the allegory of Mr. Market

-the role of psychological biases in investors’ participation in the marketplace

-confirmation bias

-anchoring bias

-recency bias

-herding bias

-loss aversion bias

-cognitive dissonance between rationale and emotions

 

Stephen Ngao is a Research Financial Analyst at the University of California San Francisco.