Efficient Markets in Crisis

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1、SCULeaveySchoolofBusinessResearchPaperNo.10-03EfficientMarketsinCrisisMeirStatmanEfficientMarketsinCrisisByMeirStatmanGlennKlimekProfessorofFinanceSantaClaraUniversitySantaClara,CA95053mstatman@scu.eduJanuary16,2010EfficientMarketsinCrisisAbstractAbelieft

2、hatmarketsareefficientisblamedforinstigatingthecrisisweareinandlullingusintocomplacencyasthecrisiswasapproaching.Butthedebateabouttheroleofsuchbeliefinthecrisisisunfocusedfortworeasons.First,alackofacommondefinitionofmarketefficiencyprecludesacommonlangua

3、ge.Second,efficientmarketsareconflatedwithfreemarkets.Theambitiousdefinitionofefficientmarketsistheirdefinitionasrationalmarkets,wheresecuritypricesalwaysequalintrinsicvalues.Themodestdefinitionofefficientmarketsistheirdefinitionasunbeatablemarkets.Bubble

4、scannotoccurinrationalmarketsbuttheycanoccurinunbeatablemarkets.Iarguethatabeliefinmarketefficiencycannotbearresponsibilityforourcrisissincemostinvestorsdonotbelievethatmarketsareeitherrationalorunbeatable.Freemarketsaremarketswheregovernmentputslittleorn

5、oimprintonthefinancialbehaviorofindividualsandorganizationsandonmarketsthroughregulationsanddirectintervention.Manyadvocatesoffreemarketsbelievethatsuchmarketsarealsomoreefficientthanmarketswhicharenotasfree.Butfreemarketsaredistinctfromefficientmarkets.H

6、ighlyregulatedmarketscanbenolessefficientinthesenseofrationalmarketsorunbeatablemarketsthanlightlyregulatedmarkets.Iarguethatabeliefthatfreemarketsarealwayssuperiortoregulatedmarketsandlightlyregulatedmarketsarealwayssuperiortoheavilyregulatedmarketsdoesb

7、earsomeresponsibilityforourcrisis.Regulationsthatwouldhavelimitedthetypesofmortgagesofferedtohomeownerswouldhavehelpedstemthecrisisormitigateit.Sowouldhavelimitsonthedegreeofleverageemployedbybanksandhomeownersalike.Yetnotallregulationsandgovernmentinterv

8、entionsbringunmitigatedbenefits.Wehavenoprecisemeasuresbywhichwemightdistinguishrealbubblesfromillusoryones.Governmentswhichaimtopoprealbubblesruntheriskofplungingusintorecessionsbypoppingillusoryones.WhilehighP/Era