Is the Market Efficient? Cliff Asness Says Yes, and No

At Morningstar, AQR Capital’s leader presents Fama and Shiller’s arguments and says he’s ‘learned to live with my schizophrenia’

“I’m not a super-hardcore efficient marketer,” says Cliff Asness of AQR Capital.“I’m not a super-hardcore efficient marketer,” says Cliff Asness of AQR Capital.

Cliff Asness created a “watershed moment in the hedge fund industry” when he brought his sophisticated hedge fund strategies into the mutual fund space in 2011, said Scott Burns of Morningstar in introducing Asness last week.

Asness created a similar moment in his morning keynote speech at the Morningstar Investment Conference on Friday, exploring whether the markets are efficient in his trademarked sophisticated manner, bolstered through the display of high-end research and peppered with humor. He began by apologizing for “talking about theory at 8:00 a.m.” to a receptive audience before presenting his take on why the Nobel prize committee was correct in awarding its economics prize last year to two men who sit on opposite ends of the efficient market theory: Eugene Fama of the University of Chicago and Robert Shiller of Yale (Asness also made sure to honor the sometimes overlooked third winner of the prize last year: Lars Hansen, also of Chicago.).

“Gene and Bob are on opposite sides of the efficient market hypothesis,” Asness said, before disclosing that he’s “not exactly unbiased,” since he not only was a student of Fama’s at Chicago but his teaching assistant as well for two years, and that “along with Jack Bogle he’s one of my investing heroes.” But his bias, he said, was “at least in both directions.” He also noted that his Ph.D dissertation at Chicago for Fama argued in favor of the price momentum strategy — “that it worked” — but that Fama was gracious and supportive despite their differing beliefs.

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