Consistently inefficient

When I read the following in FT, I could hardly suppress a smile:

Chinese economy gets a shot China’s central bank injected a record Rmb570bn ($84bn) into the country’s banking system on Wednesday in the latest effort to boost liquidity and promote increased lending. Global markets responded favourably. (FT)

Stock markets react positively whenever major economies boost liquidity. It is not that stock markets reacted negatively much when the bad news out of China was pouring out. Perhaps, other central banks were pushing liquidity then!

But, they are into lazy investing. Low interest rates and liquidity are what they care about. If you are in doubt, read this interesting article published in New York Times on 10th January and download the original paper too. Investors just do not read annual reports even if they contain information (hints) of bad or good tidings to come. They react only when the actual news breaks out months later. So much for the market’s informational efficiency. 

It is breathtaking that someone got a Nobel Prize for calling the stock markets efficient populated as they are by humans who are anything but. May be, the efficiency of the Swedish Riksbank’s selection committee has to be questioned!

One thought on “Consistently inefficient

  1. As I read this blog and the paper that you had referred to two things popped into my mind. First, we are conditioned to see and not to see things. We selectively perceive. Asked to count the number of passes a team makes in a Basketball court our mind is so fixated in counting, which is what we have been instructed to do, that most of us might not see a bear waltzing across the court! We are taught to do things in a certain way – analysis of annual reports included. We start and end with financial statements. Management discussion and analysis, which is where you would tend to see Baxter like stories, is relegated to the backdrop. But leaving aside these cognitive blind spots for a while, and that gets me to my second point, which is, isn’t it incumbent on companies to provide potentially business affecting issues a relatively more prominent space in public documents? Why blame the investor and his lack of attention or laziness when companies play out the old Ashwatama hatha Kunjaraha trick!

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