CXO Advisory and FinanceProfessor.com point to an academic paper that draws some interesting conclusions from aggregate equity volume data. In “Is Stock Picking Declining Around the World?” by Utpal Bhattacharya and Neal E. Galpin find that over time volume attributable to stock picking has declined as a percentage of overall volume. In short, as investors have embraced modern portfolio theory, the need to trade on an idiosyncratic basis has declined.
Just because investors are not making as many stock bets does not mean they have stopped making forecasting. We have touched on the topic of the folly of forecasting financial and economic data. The folly of forecasting is evident in the political arena as well. Daniel Drezner points to a book and review that shows that political analysts are just as prone to being overconfident and making forecasts that are no better than non-experts.