Even so, a good many private investors have gone in for more risky strategies of this type. To my knowledge, there are unfortunately no studies that systematically illustrate more precisely how people in Sweden have managed their saving in shares. A research paper from the United States points out that the IT boom, combined with markedly lower transaction costs as a result of new 14 technology, induced many inexperienced people to invest in shares. Moreover, access to the internet leads to an increased number of share transactions, with poorer results. These less experienced players have tended to concentrate on the technology-oriented Nasdaq exchange. Whereas more professional and institutional investors account for 90 per cent of transactions on the New York 15 exchange, approximately half of Nasdaq dealing is by private individuals. American investors are also becoming younger; the proportion who are under 35 and make more than six transactions a year rose from 1.1 per cent in 1995 to 13.2 per cent in 1998. The same tendency applies to stockbrokers and financial consultants, more than half of whom began their careers in the 1990s. All this indicates that large numbers of inexperienced investors entered the market in the 1990s and that a high proportion of their brokers and consultants unfortunately have relatively little experience. On the other hand, many of the newcomers working in financial markets have had a thorough training that is often better and – perhaps more important – more up-to-date than many of their older colleagues’.
The efficient-market hypothesis presupposes that investors are rational and base share valuations on fundamental factors. If their market behaviour is not rational, it is assumed to be random, which means that individual actions have no impact on financial prices. If irrational players nevertheless act in a similar way, any influence on financial prices is eliminated by other, more professional agents via 3 arbitrage, which is assumed to be quick and effective. The irrational players accordingly suffer losses and therefore ultimately leave the market. In this way, the competition between rational and irrational investors, together with the existence of arbitrage, results in financial markets remaining efficient. 4  In the past two decades, however, the notion of financial market efficiency has been challenged, which will hardly surprise those with practical experience. This is mainly because the possibility of arbitrage has proved to be much more limited than assumed earlier. Studies in recent years have demonstrated the occurrence of periods when prices deviate appreciably from more fundamental levels. A new line in financial science, Behavioural Finance, has emerged, aimed at explaining why price deviations occur and developing tools for predicting them. Academics in this field have turned to 5 experimental psychology and other disciplines to explain the mind-set of financial market players. In a notable paper by a Princeton professor, Robert Shiller, it had already been shown in the early 1980s that share prices are considerably more volatile than would be expected if they were 6 determined by the current value of expected future dividends.