Inertia: Purposeful Inefficiencies in Financial Markets

Financial professionals are paid as if they were capable of "beating the market" on a regular basis. In fact, active fund managers routinely underperform low-cost index funds, and financial analysts frequently produce inaccurate stock recommendations-and many receive large fees even when their clients are losing money. Why do financial intermediaries still persist in the investing world despite this track record? Economic theory, obsessed with notions of market efficiency, has no good answer. This book demonstrates how long-standing social relationships within the investing world contribute to a state of inertia, which prevents substantive change to the status quo. In financial markets-as in many other settings-social groups persist through habit, routine, and path dependency. Financial intermediaries, for their part, use their positions to maintain and reproduce a state of affairs from which they benefit. Although financial professionals portray their world as one of dynamism and continuous innovation, in reality a strategic and purposeful inertia often prevails. An incisive sociological analysis of the communities that constitute financial markets, Inertia offers new insight into the social structures and dynamics that shape economic action.

Table of Contents:
Introduction 1. Financial Intermediaries 2. Social Structures of Financial Markets 3. Social Stickiness 4. Conformity and Consensus 5. Technological Resistance 6. The Big Doxic Disturbance 7. Distinction Work Conclusion: Purposeful Inertia in Financial Markets Methodological Appendix: Speaking to the Prophets of Alpha Notes Index

About the Author :
Yuval Millo is professor of accounting at Warwick Business School, University of Warwick. Crawford Spence is professor of accounting and codirector of the FinWork Futures Research Centre at King’s College London. James J. Valentine is the founder of AnalystSolutions and previously served as director of the Applied Investment Management program at Marquette University.

Review :
This lively, provocative, well-informed book injects a badly needed dose of sociological realism into the analysis of investment management, highlighting the role of habit, routine, personal relationships, and the defense of vested interests. In this groundbreaking book, Yuval Millo, Crawford Spence, and James J. Valentine challenge the prevailing perception of the financial industry as a bastion of innovation and dynamism. Through an in-depth examination of analysts and fund managers, they reveal a complex web of social networks, entrenched customs, and ingrained habits that foster stability, routine, and resistance to change. This important, provocative, and powerfully written book turns many taken-for-granted wisdoms about financial intermediaries on their head. In an enthralling and accessible manner, it sheds new light on the social structures underpinning inefficiencies in financial markets. Inertia is a must-read for everyone interested in how and why these come about and persist. The academic evidence that most investors should use passive funds is overwhelming. So why do so many financial professionals still recommend active funds? This fascinating book reveals some intriguing explanations, and everyone who cares about investor outcomes should read it. This important book on the little-understood world of financial intermediaries is a much-needed corrective to economically rational explanations of the market. It makes clear the value of exploring how markets actually function, rather than how desiccated economic theory posits they should work. What’s so interesting about Inertia is that it focuses not on organisational or behavioural factors, as previous research has done, but on sociological ones. Rather than viewing financial markets as static or purely rational, the book underscores their social construction. A fascinating and often bitingly funny showcase of the cognitive dissonance constantly grappled with by a diminishing class of financial professionals and a study of the odd, social side of finance. The work is a bold call to reimagine the forces at play in financial markets—a must read for anyone eager to understand the complexities behind market prices.