New research says any monkey can beat the experts at the stock market
Even a monkey picking stocks at random could easily beat the US stock market, according to new research by Cass Business School in London.
Researchers at the school found that equity indices constructed randomly as if by monkeys would have produced higher risk-adjusted returns than an equivalent market capitalisation-weighted index over the last 40 years.
The discovery is likely to come as a blow to investors that have billions of dollars worldwide invested on a market cap-weighted basis.
The study, based on monthly US share data from 1968 to 2011, found nearly all 10 million indices weighted by chance delivered vastly superior returns to the market cap approach.
“We programmed a computer to randomly pick and weight each of the 1,000 stocks in the sample; we effectively simulated the stock-picking abilities of a monkey,” according to Prof Andrew Clare, who co-authored the study. “The process was repeated 10 million times over each of the 43 years of the study.”
The 10 million portfolios containing stocks randomly picked produced better profits than a tracker fund, he added.