The New Finance: The Case Against Efficient Markets

by Robert A. Haugen

The Second Edition makes the case for the inefficient market, positioning the efficient market paradigm at the extreme end of a spectrum of possible states. It presents a comprehensive and organized collection of the evidence and the arguments which constitute a strong and persuasive case for over-reactive markets. Updates the expected 30-year future returns to growth and value stocks. Adds a much more comprehensive study of the international evidence on the relative returns to growth and value stocks. Includes a critique of the FAMA?the French three-factor model. Presents new evidence exploring how expensive stocks tend to have rapid trailing earnings growth but not rapid future growth. Offers new evidence demonstrating the nature of subsequent earnings revisions for cheap and expensive stocks. An excellent book for professionals in the financial market field.

Genres: Finance, Economics, Business, Nonfiction

160 pages, Paperback

First published April 1, 1995

Reviews

[Nicolai · Rating 5 out of 5]

The efficient market paradigm does not square with the facts. This book makes a strong and persuasive case for over-reactive markets - the implication is that markets are not efficent.

growth stocks (companies growing faster than average) are priced too high. they are risky.

value stocks (companies growing slower than average) are priced too low.

stocks slowly over-react to news. there is inertia in the short term and over-reaction in the long run.

it is difficult to remain outstanding in a competitive world for long.

price to BV is one good measure to avoid over-priced stocks.

growth stock premium is not merely a risk premium - it is also over-optimism.

generally we are afraid of volatility.

small stocks give greater returns.

read this book before you give your money to a growth investor!!

focus on value

[Ben Sutter · Rating 2 out of 5]

Challenging and proving in parts, but unconvincing in areas. Written as if a treatise to change the world, but the themes lack coherence and conviction.

[Rodrigo · Rating 4 out of 5]

Podría ser más de la mitad de corto este libro si el autor no intentara escribir gracioso, algo que parece común en los libros de finanzas. Muy lejos de ser una lectura agradable.

El contenido es interesante en cuanto a la teoría de la ineficiencia del mercado, si bien hace saltos lógicos fantásticos y cuando intenta dar sus propias explicaciones (the new finance) se saca bastantes cosas de la manga.

Buen libro pero podría ser más corto y no es exactamente útil más que para desencantarte rápido de la creencia religiosa de que los mercados son eficientes y racionales

[Viraj · Rating 3 out of 5]

The author spends nearly the full book trying to prove that the efficient market theory is incorrect. He uses multiple novel and non-standard methods with good references to prove his point. The book could be written differently to make it a better read; but the worst part was that after proving, it doesn't lead to anything significantly more useful. The author's publication called Case Closed is better; but still not very good.

[Gabriel Pinkus]

An academic rebuttal to the efficient market hypothesis and capital asset pricing model.

Haugen quotes Ben Graham but makes the erroneous "value" vs "growth" dichotomy of stocks (whereas in reality, growth is a component of value) and the "volatility is beta is risk" error.

It is still quite interesting, Joel Greenblatt recommended this book in his Graduate Special Situation Investing course at Columbia Business School so I checked it out from the library.

[Steve · Rating 4 out of 5]

Interesting data sets to show inefficient markets. Good source for correlation, but his timeframe is shorter than I would like.