Are markets efficient? 

This is the most agreeable disagreement i ever saw

I don't think a lot of people understand how significant this debate is

I took Prof. Thaler's course at Booth. At that time, the course was called "Managerial Decision Making". I always wondered why not "Behavioral Economics". You have to admire the man. He had the nerve to go mostly on his own, stick with his guns when no one believed in the topic of behavioral economics, and make a whole field out of it. Much respect! For both Thaler and Fama.

Wow everyone's out watching McGregor vs. Mayweather... smh. THIS is the only fight I wanted to see XD

I love Gene. To hear him talk about markets is like having the best wine. It's just superb.

We should learn how to have a discussion without screaming and getting upset from these two legends.

A kinda objectivity vs subjectivity debate... Loved the talk of these two geniuses as it inspires several dimensional perspectives to the Conjecture!

Eugene fama is a really humble man and I love him for it, very smart man and I like viewing the markets as efficient even if it’s not perfectly so

So great to get these two geniuses together.

Amazing video. The intellectual battle between these two economics geniuses during the past 2-3 decades was amazing. Although I am siding with Thaler on market efficiency you can’t really not appreciate and admire Fama as one of the most prominent defenders of EMH.

A video for History ! a few months later, Mr Thaler was receiving the Nobel Prize. Who won the debate ? Both are great minds. YC France

This is equivalent as the Batman vs Superman in Economics

Amazing video! Such a joy to listen to Fama and Thaler's arguments. Hope Chicago Booth Review keep uploading these amazing videos.

I am always amazed by the level of discussions of people like nobel prize winners researchers. This is always fascinating to watch.

What an informative debate between these two towering figures in the field of finance.

37:00 is what you're looking for.

This was a pleasure to watch. Thank you.

For myself, I believe market is efficient in long-term And market is inefficient in short-term The short-term can be referred to only one day, or as long as 1 years, more than 10 years, or more And the long-term is infinite period in the existence of the market "To me, both Fama and Thaler are true"

To my understanding this just proves how much we need an edge as investors because playing the market like everyone else just isn’t good enough. I've been quite unsure about investing in this current market and at the same time I feel it's the best time to get started on the market, what are your thoughts?

Thaler won Nobel in 2017 !!!

Great discussion! And wonderful moderation by the way.

who's watching finance videos in 2020?

For the people who do not get the argument is, the two disagree mostly on interpretation and not of data. Fama wants a systematic way to show behavior while Thaler allows the inclusion of anecdotes and anomalies.

This debate has been on RU-vid for over 4 years and less than 112,000 have viewed it, no wonder why the markets are irrational.

Great video, a number of the most eminent market experts have been expressing their views on the severity of the impending economic downturn and the extent to which equities might plummet. This is because the economy is heading towards a recession and inflation is persistently above the Federal Reserve's 2% target. As I'm aiming to create a portfolio worth no less than $850,000 before I turn 60, I would appreciate any advice on potential investments.

Till this day, this conversation debate is so important!

Fama is the GOAT

Fama only starts looking at Thaler after 27:00, he was pretty tense before that. It changes after some jokes on both sides.

I’m here, from Brazil 🇧🇷, watching it because of Icaro de Carvalho’s recommendation. 🙏😅

The way I like to put it is that markets are efficient. And when they become inefficient, market makers will, at some point, restore equilibrium. Hence, they are efficient.

Si vous êtes arrivé ici grâce à la chaîne Club de Valeur, laissez votre pouce !

Some part of the answer at 21:00

The funny thing is, if everyone thinks the market is efficient and only invests in index funds, the market will be very inefficient, but if everyone thinks the market is inefficient and picks stocks, there will be winners and losers, and the average of those two people will not outperform the person who simply buys index funds and drinks coffee. Personally, I prefer to buy index funds and drink coffee while encouraging people to learn about stocks and do active investing😄

Great video! Thank you.

This was a good discussion

8:30. That's an interesting idea I haven't considered before. Risk aversion changes through time. What a great insight. Something to think about. But, the problem is that it implies that the intrinsic values of asset prices are a function of risk aversion. That doesn't make sense. The "correct" value of an asset is a function of its remaining future cash flows discounted at an an appropriate risk-adjusted rate, with the risk related to the competitiveness of the industry in which it operates, its position in the market, its leverage and various other factors specific to the nature of the business, not on your opinions or emotions. Much like the laws of physics don't consider your feelings in determining the mechanics of the universe, the correct value of a business (for the most part) is objective, regardless of how risky you feel it is. It is ironic that he uses this changing of risk aversion as an argument for market efficiency when it could be used to argue against it. It is this unreasonably quick reversal of risk aversion by the financial markets as a whole that can produce unrealistic valuations. That leaves opportunities to those who are more level headed. As Buffett would say: "Be fearful when others are greedy, but be greedy when others are fearful."

Civil War: Team Fama Vs Team Thaler

If the all the available information is priced in the asset prices, this doesn’t mean that the prices are correct in a sense that they price the asset properly. There's an element of randomness and unknown future that is never priced. The opposite argument assumes perfect determinism and we know that there's no such thing.

The comments are spending more time talking about how smart the conversation is and how smart you guys must be for listening to it than the actual content of the conversation.

Prices reflect all available information , no doubt about it . Chief among this information is that public resources ( Central Banks , Federal Reserve etc ) will always be there to externalize/socialize risk through QE. Liquidity and confidence crisis will always be averted and toxic stuff will always end in the "FOR-OF-BY-the Pople´s" porfolio .

My conclusion: 1. Market is indeed efficient (in strongest form) Occam razor or maximum entropy model, it really works 2. Don't read any behavior finance book, it is for leisure purpose only. 3. Eugene should be awarded twice. One for EMH and one for asset pricing models. No one like EMH, as it would put a lot of people out of work.

I admire with Fama.

Is this automatically captioned?

Wow this was quite entertaining like two smart friends just chatting

Price is never right, it's always changing. Constantly changing it's mind.

This is what happens when you play golf.

Eu sei que você veio aqui pelo Ícaro de Carvalho.

Why those that say that the market can't be beaten usually are the ones that invest in stocks individually and not ETFs?

Fama is really brilliant

So it the market efficient? I came here for answer but this video makes me even more confused than before.

Pena que não tem legendas em português

Information yes, emotion no. Let me give you an example. Suppose you could know for certain that Company A would grow by 10% every year for the next ten years, while Company B would grow by 2% over the next 10 years, and continue to pay a 5% dividend with a 2% annual raise. This is more information than we could possibly have. Would these two stocks be rationally priced? I predict that would not be the case. Investors would still overpay for growth, and underpay for a steady existing business. The idea of getting more money in the future is more appealing than getting a boring but steady stream of income.

Love this

Are markets efficient? No. Never. No one ever has all the information. Is marriage efficient? No. No one ever tells their spouse everything and most people cheat and lie.

Why do financial advisors sell bonds, that are debts of companies asking others to pay off? Isn’t that inefficient management of a company?

Unless you are an insider. Invest in ETFs/Index funds.

This is fucking GOLD.

Alguém d'ONM?

Hi Mark.

You should invite Warren Buffet to this debate

27:09 hahaha.

THIS IS UNBELIEVABLE FUNNY! Two BRILLIANT guys, really! But I'm used to physics where everything either IS or is NOT. In finance, NOTHING is really completely "solved". So interesting.

How wonderful to have a hypothesis so obviously wrong and without any evidence but also cannot be disproven. My hypothesis is the completely random market hypothesis. Oh its not "perfectly" completely random but its "very" completely random. Disprove me.

고계투 때문에 본다? 따봉ㄱ

It puzzles me how hard is for someone as bright as Fama to admit agreement in any point. I would say that when he says " risk aversion moves dramatically through time (8:48)" he is referring to what behavioralist study, and because they are not able to predict it does not mean their work is pointless. As far as I know geologist are not able to predict earthquakes and they keep studying them.

Still I Don't understand market efficiency 🙄 can anyone help me to understand?

All models are wrong, however, it just tends to be the case that some are more useful than others, might I add, in a given CONTEXT.

Bottom line: market efficiency aficionados will be destined to match the market and people who realize that the market isn’t as efficient as theorized will either lose their shirt or make outsized returns.

In hindsight every price is wrong 🤔

Can someone give me more clarification about market efficiency? What is market efficiency?

Buying broad based index funds means believing the market is mostly efficient. Buying across time by DCA means dealing with the less efficient part of the market with diversification through time. DCA into a broad based index fund, and you take care of both.

Vasco da old GOA. 🐟🐟🐟🐟 Joka

27:30 8:36

I mean it isnt efficient all the time but almost all the time

Broadly and long term markets are efficient, short term or individual stocks...no way,

2:03

No, but are close to efficient

There is no way that the market reflects all of the information available. Firstly not all individuals in the market are aware of all of the information, not all individuals understand how that information could affect the market and even if all individuals knew all the information available they could still interpret that information differently. The market reflects the average of each market players take on the information that they know, understand and interpret. That makes it extremely unpredictable and totally reliant on all available information. It also means it can not be completely efficient.

When people were saying, "just buy mortgage bonds, you can't lose," that is a prime example, of an entire society inefficiently pricing an asset. For anyone on board with Fama's train of thought, please pay attention to all the times he says he can't prove something, can't explain something, uses bad logic, and also says, "no you're wrong, I'm right." In any given case, the value of an asset can be approximated, assuming there are cash flows to be valued. The price will always be somewhere at, above, or below that value. The only time value investors would ideally want to buy, is when they're paying a price less than the value. With stocks, value goes up or down based on the underlying businesses' ability to produce its future cash stream. It's a nice theory, but it's far from perfectly explaining every situation. It does explain well, what happens with a basket of stocks. Less so, with individual situations. Here's an example: you can buy the Chinese company, Tencent, outright. You can also buy exposure to it through two other holdings; Prosus, and Naspers, both at different discounts to the value of Tencent (I.E. at one point if you were buying tencent for $1, you couldve also bought tencent for $0.68 with Naspers, and for $0.47 with Prosus.) The figures given in the example are more or less accurate. You definitely can't tell me markets are efficient all the time. Also, Fama literally calls value stocks (stocks that are cheap) more risky. Paying less, to that guy is somehow more risky, and also yields higher returns, historically. That is some logic there...

Wow

These EMH guys are sole argument is that ... "well you can't disprove it so it must be true". Nope.

There is a difference between data and information. Do the markets reflect all available information? yes! Has all data been processed into information? No! That is why Munger and Buffett can repeatedly do what they do. Fama and Shiller are describing the same thing. I have no problem reconciling the two in my mind. Bogle... Shiller and Fama have made we wealthier. I am unable to implement Munger and Buffett.

Vim pelo Faria Lima Elevator.

Mc Beth seven factor model.

23:50

Sharp ratio.

$GME.. Just sayin'. Edit: Added a dollar sign.

Thaler's is probably right too, but Fama beats him hands down. Thaler provides no good evidence that Fama is wrong. Fama's argument that risk preference change is a massive cop-out that would make efficient markets true by definition. Fama's idea that value vs growth is a matter of taste is odd. Professional money managers wants low variance return, at least a fairly large portion of them. I think it is more some psychological limitations with the money managers. Fama's point to kick out all PhD students in Finance that just searches for anomalies is funny. I also find Thalers rambling annoying. Fama is so efficient in his speech. Impressive.

Stanley Fisher Van DER Walls.

If the market wasnt efficient there would be no funds

I think it was munger that said they are too smart for their own good. Eugene calls himself an economist, not an investor.

Market prices are Always wrong in the sense that they present a biased view of the future.

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Programão de sexta com a cremosa...

What Thaler to me seems to disregard is that an economic agent acting on the basis of greater fool theory is acting just as rationally and just as based on all available information (e.g. the conviction of the economic actor, based on past events, that there will be people buying X at Y price). In this light, his CUBA fund example is actually an argument for the efficient market hypothesis: you don't stop being a rational economic actor just because you are not making your decision on fundamental analysis (stock price deviating from NAV of the fund, home prices booming etc.). The dude that buys the top made a bad economic decision, but bad decisions are rational too, not to mention that the market corrects later.

Ben Bernanke

Fama is the man, the other guy isn't close. Fama is laughing at him throughout lol. Fama is a nobel laureates.

Schiller's.

I love how economics can transcend partisan squawking

Thaler is a cocky guy. I am glad Fama handed his ass to him.