Why Have Markets Learned Nothing in the Last 50 Years?

An editorial last week about financial market liquidity, by my new colleagues at Bloomberg View, cited this fascinating paper by Jennie Bai, Thomas Philippon and Alexi Savov called "Have Financial Markets Become More Informative"?* The answer is no.

As the View editors put it, the authors "find that prices of stocks and bonds in the U.S. are no better at predicting the profitability of companies than they were 50 years ago, despite the vast increase in trading volumes and sharp decrease in transaction costs over the same period."