Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined

Cover of Efficiently Inefficient

By Lasse Pedersen

By Lasse Pedersen

In Efficiently Inefficient, Professor Lasse Pedersen describes the key trading strategies used by hedge funds and demystifies the secret world of active investing. Professor Pedersen combines the latest research with real-world examples and interviews with top hedge fund managers – including Lee Ainslie, Cliff Asness, Jim Chanos, Ken Griffin, David Harding, John Paulson, Myron Scholes and George Soros – to show how certain trading strategies make money and why they sometimes don't.

Professor Pedersen views markets as neither perfectly efficient nor completely inefficient. Rather, they are inefficient enough that money managers can be compensated for their costs through the profits of their trading strategies and efficient enough that the profits after costs do not encourage additional active investing. Understanding how to trade in this efficiently inefficient market provides a new, engaging way to learn finance. Efficiently Inefficient analyzes how the market price of stocks and bonds can differ from the model price, leading to new perspectives on the relationship between trading results and finance theory. The book explores several different areas in depth – fundamental tools for investment management, equity strategies, macro strategies and arbitrage strategies – and looks at such diverse topics as portfolio choice, risk management, equity valuation and yield curve logic.

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Lasse Pedersen is the John A. Paulson Professor of Finance and Alternative Investments.