This is a bit of an old article, but the idea of stock market learning came up in class on Wednesday and ethics all of last week, so I will mention market learning in the context of governance.
Short version: it used to be that you could get a higher return by buying firms with good governance (Gompers, Ishii, and Metrick, 2003) (as measured by the Gompers-Ishii index) and shorting poorly governed firms. BUT then the market learned and now the index is seemingly priced (in other words higher Q values, but returns no longer predicted by index levels.
Investing in Good Governance - NYTimes.com:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1593911
'via Blog this'
Short version: it used to be that you could get a higher return by buying firms with good governance (Gompers, Ishii, and Metrick, 2003) (as measured by the Gompers-Ishii index) and shorting poorly governed firms. BUT then the market learned and now the index is seemingly priced (in other words higher Q values, but returns no longer predicted by index levels.
Investing in Good Governance - NYTimes.com:
"There is evidence that good-governance features included in standard governance indexes do improve the performance of companies – but that their significance is already reflected in market prices."Here is the paper showing the learning:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1593911
'via Blog this'
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