Young: How to take advantage of irrational behaviour

COMMENT

Hugh Young, managing director of the Aberdeen New Dawn investment trust, asks if investors have overreacted to negative sentiment and pulled out of markets prematurely.

The 2013 Nobel Prize for economics went to men with opposing views on how stock markets work. The American economist, Eugene Fama, argued markets are “efficient” – they price in all known information more or less perfectly because investors are rational and are able, all together, to price information correctly. Robert Shiller, in a now famous 1981 paper, asked: “Do stock markets move around too much to be justified by subsequent changes in dividends?”  He proceeded to show that, based on the S&P 500, stock prices fluctuated more than the eventual dividends they were supposed to ha...