Cliff Asness: Market Inefficiencies Are Becoming More Pronounced

In this interview with Bloomberg, Cliff Asness from AQR discusses how market inefficiencies are becoming more pronounced and persistent over time.

Here are the key points:

  • Wide spreads between cheap and expensive stocks: The gap between undervalued and overvalued stocks has become more extreme and is lasting longer than in the past. Although spreads have narrowed since the peak of the Covid era, Cliff suggests that markets remain “out of whack” and are still around the 80th percentile compared to historical spreads.
  • The primary factors contributing to market inefficiency are: The rise of passive investing, extended periods of ultra-low interest rates and influence of technology and social media.
  • On technology’s impact, Cliff argues that while technology has increased the speed of market pricing, Asness argues it hasn’t necessarily improved accuracy and may even contribute to less accurate pricing.
  • He speculates that the rise of passive investing, prolonged low interest rates driving investor behaviour, and the influence of technology are potential reasons behind the increasing market inefficiencies.

[…] The bigger question I’m trying to answer is I see this as a sign of the market getting less efficient about pricing.

In principle, we all think things should get more efficient over time. Technology marches on, data is more available. Things that were available at a lag are available instantly now, but I think most of those things go to speed, not to accurate pricing.

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