Capital inflows into passive funds reward yesterday’s winners...
and more especially the big index constituents.
It is a momentum or trend following strategy that helps ensure that prices are a poor reflection of fundamental value while reinforcing any tendency to market bubbles as fresh money pours in.
We are a long way from a world in which stock prices reflect fundamentals, where people invest to generate a straightforward income to pay a pension or where investors routinely try to buy low and sell high.
Meantime, the goal of market efficiency appears painfully elusive.
John Plender Ft 11 June 2022
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