So Much for Efficient Markets

August 1998
Journal of Financial Planning;Aug1998, Vol. 11 Issue 4, p14
Academic Journal
This article deals with the study conducted by the Johnson Graduate School of Management at Cornell University that found that less informed investor subjects tended to buy high and sell low more than better informed investor subjects. The less informed subjects tended to react confidently on skimpy information, while their more informed subjects reacted more conservatively. According to Cornell's press release, the experiment showed that it is not simply a lack of information that can hurt less-informed investors. Rather, it is their tendency to overestimate the quality of their information. More informed investors are better off because they get information from so many sources. On the other hand, the Cornell investigators did argue somewhat convincingly that these less-informed investors bid up market prices too high, creating inefficient markets. Most researchers in finance and accounting think there is no reason to protect small investors, because they will protect themselves.


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