No, the markets are still efficient. It's just that intellectual capital is devoted to playing the market that could be devoted to other more productive things. If you want to borrow money, hedge risk or issue new stock you can do all that but there are fat profits to be had from being the smartest guy on the market or the one who figured out one particular arbitrage opportunity before anyone else.
Finance as waste: There's an arbitrage opportunity somewhere worth 100,000, and it will be picked up within a week of emerging. It is privately profitable to spend up to (100,000 - trading costs) to be the first to notice this, but the social benefits of it being discovered in 2 days rather than seven verge on zero.
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No, the markets are still efficient. It's just that intellectual capital is devoted to playing the market that could be devoted to other more productive things. If you want to borrow money, hedge risk or issue new stock you can do all that but there are fat profits to be had from being the smartest guy on the market or the one who figured out one particular arbitrage opportunity before anyone else.
Finance as waste: There's an arbitrage opportunity somewhere worth 100,000, and it will be picked up within a week of emerging. It is privately profitable to spend up to (100,000 - trading costs) to be the first to notice this, but the social benefits of it being discovered in 2 days rather than seven verge on zero.