Finance Academics: Your Stocks are Efficient, But Mine Aren’t

This should come as no surprise, and I’ve written about it here a little before. Nevertheless, a new paper purports to show (it uses surveys, ick) that finance academics aren’t all that consistent about investing according to their own research.

This paper examines finance professors’ collective opinion on the efficiency of US stock markets and whether their views on the markets’ efficiency influence their investing behavior. We survey close to 4,000 professors, with an 18% response rate and find that most professors tend to believe US stock markets are weak to semi-strong efficient. Interestingly, their individual views on efficiency are not related to their trading behavior. The primary driver of a finance professor’s propensity to actively invest is one’s confidence in his own abilities to beat the market, regardless of his opinion of the efficiency of the US stock market. [Emphasis mine]


  1. This is not as much of a contradiction as it might appear.
    One lesson of efficient market theory might be stated as nobody (not an insider) has an informational advantage.
    This leaves open the possibility that some people are above-average at making use of available information, particularly at *small scales*.
    By definition, everyone can’t be above average.
    HOWEVER, if you’re a PROFESSOR OF FINANCE, you have a *rational basis* for the belief that you are in fact above-average in finance (offset by corresponding below-average individual investors).
    Unfortunately, this belief is likely more wrong in terms of investment results than otherwise. But it’s more complicated than simple cheap irony.

  2. I would be curious to see whether when the term “actively invest” is used it implies individual stock picking and attempted market timing or also takes into account an index based approach.

  3. Rafael Montoya says:

    Finance professors usually do not include the “gut feeling” and the “human factor”, among other elements, into their rationale. Audacity motivates many investing decisiones but cannot be had with 3 decimal points.
    On the other hand, the Finance Professors I have met tend to be conservative with their own money. The ones who are more likely to take chances eventually jump to the entrepreneur field and abandon academia.