Who Is On the Other Side?

Morgan Stanley

Michael Mauboussin, Dan Callahan

Research

97 Pages

Morgan Stanley lays out a practical framework for why markets are only efficiently inefficient and where mispricings come from. It connects efficiency to information costs, investor behavior, and real world limits on arbitrage. One provocative idea is that as indexing and rules based flows grow, price discovery relies on fewer motivated investors.

Date published: January 21, 2026

Key Takeaways

Define your edge: Excess returns require being different from consensus and being right after costs.
Know the other side: Identify who is trading for non fundamental reasons and when they must transact.
Map inefficiency sources: Separate behavioral, analytical, informational, and technical gaps before acting.
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