Tuesday June 2, 2020

Stock markets: Why the wise crowds may not be so wise after all

Don’t be deceived by the performance of global equity markets – the ripple effects of Covid-19 are only beginning to be felt

29th April, 2020
The least likely outcome for the global economy is a so-called V-shaped recovery, write Larry Hateway and Alexander Friedman.

In his 2004 book The Wisdom of Crowds, James Surowiecki shows that large groups of people typically converge upon better predictions than even the smartest individual.

He applies this logic to financial markets, where individual investors collectively determine the prices of stocks and bonds. Insofar as the value of a stock or bond reflects its future cash flows (appropriately discounted), markets are typically considered good predictors of the future.

And yet, we know that the collective...

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