Tuesday, 28 July 2020

Market inefficiency, liquidity flywheels, asset class arbitrage, and Hong Kong Land

Conventional economic theory holds that the marketplace in financial assets ought to be 'efficient'. Large numbers of intelligent and diligent investors have access to largely the same pool of information, and are highly motivated to root out and exploit any underpricings that exist. It is believed this competitive process will inevitably drive assets to their fair value - i.e. those that accurately reflect their risk and reward characteristics, and also price assets correctly relative to one another.