Efficient markets theory and tennis

Why aren’t markets as efficient as theory tells us they should be? Tennis odds give us a clue, says John Stepek.

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Novak Djokovic: the favourite doesn't always win
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We all know that markets are not as efficient as academic theorists would like them to be. A wide range of "anomalies" have been found that mean there are certain strategies that, over the long run, should (if history remains any guide) beat the wider market. These include momentum (buy stuff that goes up, sell what goes down); value (buy what's cheap and sell it once it's no longer cheap); and small caps (smaller companies beat larger companies over time). The question is why do these phenomena persist? Why are they not arbitraged away once investors find them?

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.