If 99% of the market was passively held, the market still *could* be efficient by the remaining 1%. As long as those 1% of participants have all available information and are trading rationally, they could set the price appropriately. (no guarantee, just saying it's possible)how could one person be an active investor if s/he has no one to trade with?O.K.--so what if 99 out of 100 people were passive investors, and a single individual were an active investor: in that case, would the marketplace be considered inefficient?if the market were 100% passively held, the market would be inefficient because no one would be setting prices.But if the market were 100% passively held, would it cease to go up?
It's the active traders that set the price. As long as there is someone willing to risk stock picking, the passive traders can follow along.
you need a buyer and a seller.
that means two active traders (at a minimum) to make a market.
In many high cost California neighborhoods, you have a "market price" of $2-3 million houses which are set by a market of only 20-30 homes in one city. In slow times, it could be less than 10 homes available for sale. The rest 99% of homes could be thought of as "passively" owned. The market is still regarded as rational (ignoring whether we think a $3 million home is rational... but these prices are fairly stable so they "look" correctly set, despite the high price)
Statistics: Posted by pm5987 — Mon May 20, 2024 10:58 pm — Replies 17 — Views 1505