Double agents

Abstract

The way investors choose fund managers may cause anomalies in the markets Sep 13th 2014 | From the print edition MOST financial assets these days are not held directly by investors but by professional fund managers on their behalf. And that separation may explain a couple of big anomalies that undermine belief in the efficiency of markets. The most striking anomaly is momentum—the fact that an asset that has recently been rising in price typically continues to do so. If markets were completely efficient, then past price movements should tell you nothing about the future. But lots of commodity-trading advisers, a type of hedge fund, make their living using sophisticated formulae to exploit this mysterious but abiding tendency. A new paper