The Efficient Market Hypothesis and Its Critics
Abstract
Revolutions often spawn counterrevolutions and the efficient market hypothesis in finance is no exception. The intellectual dominance of the efficient-market revolution has more been challenged by economists who stress psychological and behavorial elements of stock-price determination and by econometricians who argue that stock returns are, to a considerable extent, predictable. This survey examines the attacks on the efficient market hypothesis and the relationship between predictability and efficiency. I conclude that our stock markets are more efficient and less predictable than many recent academic papers would have us believe.
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TL;DR
Malkiel surveys challenges to the efficient market hypothesis from behavioral finance and predictability research and argues that stock markets remain far more efficient and far less predictable than critics claim. He concludes that documented anomalies are generally not robust or exploitable after transactions costs and that professional investors rarely beat broad index funds.
Key findings
- Predictability claims exist but are weak or unreliable: Fama and French (1988) found 25–40% of the variation in long holding-period returns can be predicted from negative correlation with past returns, and dividend yields or P/E ratios can explain as much as 40% of future return variance. Yet Malkiel notes these predictors failed after the mid-1980s: with S&P 500 P/E in the low 20s and dividend yield below 3% in June 1987, the next 10-year annual total return was 16.7%; after June 1992, with yield at 3% and P/E in the mid-twenties, the subsequent return through June 2002 was 11.4%; from December 1996, despite Campbell and Shiller’s near-zero forecast, the S&P 500 returned almost 7% annually through mid-2002.
- Anomalies are not dependable or profitable: small-company stocks returned over one percentage point more than large stocks since 1926, but there was no gain from holding smaller stocks from the mid-1980s through the 1990s; a Dimensional Fund Advisors value fund had an abnormal return of negative 0.2% per month over 1993–1998; momentum investors did worse than buy-and-hold investors because of transactions costs; and the January effect became undependable after publicity.
- Professional managers generally underperform: about three-quarters of actively managed funds failed to beat the S&P 500 and Wilshire indexes over the past decade; the median large-cap equity fund underperformed the S&P 500 by almost two percentage points over 10-, 15-, and 20-year periods; of 355 original funds over 30 years, only five outperformed the market by two percentage points per year or more; top funds of 1998–1999 did three times the index then three times worse in 2000–2001.
- Historical bubbles and crashes do not necessarily prove exploitable inefficiency: the October 1987 one-third drop coincided with long-term Treasury yields rising from about 9% to almost 10.5% and higher risk perceptions; a discount-rate rise from 11% to 13% would lower an index from $100 to $66.67. The Internet bubble offered no obvious arbitrage opportunity before it popped, and the Palm/3Com mispricing could not be shorted because too little Palm stock was outstanding. The historical equity risk premium—stocks about 10.5% versus high-grade bonds about 5.5% from 1926–2001—is partly attributed to survivorship bias and unexpected capital gains.
Methods
- Design: a survey/essay synthesizing theoretical and empirical literature on the efficient market hypothesis, behavioral finance, predictability, anomalies, and historical episodes; it is not a new primary empirical study or formal meta-analysis.
- Data/sample: cited studies and exhibits, including U.S. stock returns since 1926, S&P 500 dividend-yield and P/E deciles through 2000/2002, Fama–French size/value data for 1963–1990, mutual fund performance data through mid-2002, and examples such as the 1987 crash, the Internet bubble, and Palm/3Com.
- Analysis: narrative evaluation of statistical versus economic significance, robustness across sample periods, transaction costs, risk proxies, and limits to arbitrage; includes a simple present-value/discount-rate example for the 1987 crash.
Limitations
- The paper states it makes no attempt to present a complete survey; it acknowledges that markets can make egregious valuation errors (e.g., the Internet bubble), that psychological factors influence securities prices, and that behavioral influences cannot be ruled out.
- The paper notes survivorship bias in mutual fund datasets and data-mining/publication bias in the anomaly literature; predictable patterns may be time-dependent and can disappear after publication.
- Evident from the text: as an interpretive survey by an EMH proponent, it relies on selected cited findings and exhibits rather than new systematic tests, and its conclusions about non-exploitability depend on assumptions about transaction costs and risk adjustment.
Model-written summary. Check it against the paper before relying on it.
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Cites
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Claims the paper makes
0 of 51 cited sources checked · 0 supported · 0 flagged
- Findingcitation§ Predicting Future Returns from Initial Dividend Yields · p. 14
The dividend yield phenomenon does not work consistently with individual stocks; investors who purchase a portfolio of individual stocks with the highest dividend yields will not earn a particularly high rate of return.
“Finally, it is worth noting that this phenomenon does not work consistently with individual stocks, as has been shown by Fluck, Malkiel and Quandt (1997). Investors who simply purchase a portfolio of individual stocks with the highest dividend yields in the market will not earn a particularly high rate of return.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Fluck, Malkiel and Quandt (1997)
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- Findingnone given§ Predicting Future Returns from Initial Dividend Yields · p. 13
For all 10-year periods from 1985 through 1992 that ended June 30, 2002, realized annual equity returns from the market index have averaged approximately 15 percent.
“In fact, for all 10 year periods from 1985 through 1992 that ended June 30, 2002, realized annual equity returns from the market index have averaged approximately 15 percent.”
Quote in the paperNot a substantial claim - Findingown data§ Predicting Market Returns from Initial Price-earnings Multiples · p. 14
Investors have tended to earn larger long-horizon returns when purchasing the market basket of stocks at relatively low price-earnings multiples.
“Investors have tended to earn larger long-horizon returns when purchasing the market basket of stocks at relatively low price-earnings multiples.”
Quote in the paperSubstantial claim - Findingown data§ 'Value' Stocks · p. 19
Over a period running back to the 1930s, it does not appear that investors could actually have realized higher rates of return from mutual funds specializing in 'value' stocks.
“Over a period running back to the 1930s, it does not appear that investors could actually have realized higher rates of return from mutual funds specializing in 'value' stocks.”
Quote in the paperSubstantial claim - Findingreasoning§ Predicting Future Returns from Initial Dividend Yields · p. 13
The use of dividend yields to predict future returns has been ineffective since the mid-1980s.
“Moreover, the use of dividend yields to predict future returns has been ineffective since the mid-1980s.”
Quote in the paperNot a substantial claim
- Findingnone given§ Predicting Future Returns from Initial Dividend Yields · p. 14
The 'Dogs of the Dow' funds have generally underperformed the market averages during the 1995-99 period.
“Such funds have generally underperformed the market averages during the 1995-99 period.”
Quote in the paperNot a substantial claim - Findingreasoning§ The Internet Bubble of the Late 1990s · p. 28
There was certainly no obvious arbitrage opportunity available during the Internet bubble.
“there was certainly no obvious arbitrage opportunity available.”
Quote in the paperNot a substantial claim - Findingnone given§ Other Illustrations of Irrational Pricing · p. 30
The apparent arbitrage in the Palm Pilot case could not be undertaken because not enough Palm stock was outstanding to make borrowing the stock possible to effectuate a short sale.
“The apparent arbitrage in the Palm Pilot case (sell Palm Pilot short and buy 3-Com) could not be undertaken because not enough Palm stock was outstanding to make borrowing the stock possible to effectuate a short sale.”
Quote in the paperSubstantial claim - Findingreasoning§ Summarizing the 'Anomalies' and Predictable Patterns · p. 22
The January effect became undependable after it received considerable publicity.
“Indeed, the January effect became undependable after it received considerable publicity.”
Quote in the paperNot a substantial claim - Findingcitation§ Other Illustrations of Irrational Pricing · p. 30
Discounts have narrowed from historical averages for funds with assets traded in liquid markets.
“Discounts have narrowed from historical averages for funds with assets traded in liquid markets”
Quote in the paperNot a substantial claim - Findingcitation§ The Performance of Professional Investors · p. 31
A remarkably large body of evidence suggests that professional investment managers are not able to outperform index funds that simply buy and hold the broad stock market portfolio.
“A remarkably large body of evidence suggesting that professional investment managers are not able to outperform index funds that simply buy and hold the broad stock market portfolio.”
Quote in the paperSubstantial claim - Findingreasoning§ The Internet Bubble of the Late 1990s · p. 29
Too much new capital flowed to Internet and related telecommunications companies.
“The result was that too much new capital flowed to Internet and related telecommunications companies.”
Quote in the paperSubstantial claim - Findingown data§ The Performance of Professional Investors · p. 33
One can count on the fingers of one hand the number of professional portfolio managers who have managed to beat the market by any significant amount.
“One can count on the fingers of one hand the number of professional portfolio managers who have managed to beat the market by any significant amount.”
Quote in the paperSubstantial claim - Findingreasoning§ The Performance of Professional Investors · p. 32
Funds that produce excess returns in one period are not likely to do so in the next.
“Moreover, those funds that produce excess returns in one period are not likely to do so in the next.”
Quote in the paperSubstantial claim - Findingnone given§ The Performance of Professional Investors · p. 32
Exhibit 7 shows similar results in different markets and against different benchmarks.
“Exhibit 7 shows similar results in different markets and against different benchmarks.”
Quote in the paperNot a substantial claim - Findingnone given§ The Performance of Professional Investors · p. 32
During the 1970s, the top 20 mutual funds enjoyed almost double the performance of the index.
“During the 1970s, the top 20 mutual funds enjoyed almost double the performance of the index.”
Quote in the paperNot a substantial claim - Findingown data§ The Performance of Professional Investors · p. 32
Similar results obtain for earlier decades.
“Similar results obtain for earlier decades.”
Quote in the paperSubstantial claim - Findingreasoning§ The Performance of Professional Investors · p. 32
There is no dependable persistence in performance.
“There is no dependable persistence in performance.”
Quote in the paperSubstantial claim - Findingreasoning§ The Performance of Professional Investors · p. 32
During the 1980s, those same funds underperformed the index.
“During the 1980s, those same funds underperformed the index.”
Quote in the paperSubstantial claim - Findingown data§ The Performance of Professional Investors · p. 31
The degree of 'survivorship bias' in the data was substantial; poorly performing funds tend to be merged into other funds in the mutual fund's family complex thus burying the records of many underperformers.
“Moreover, I found that the degree of 'survivorship bias' in the data was substantial; that is, poorly performing funds tend to be merged into other funds in the mutual fund's family complex thus burying the records of many of the underperformers.”
Quote in the paperSubstantial claim - Findingown data§ The Performance of Professional Investors · p. 33
Of the original 355 funds, only five of them outperformed the market by two percentage points per year or more over a 30-year period.
“Of the original 355 funds, only five of them outperformed the market by two percentage points per year or more.”
Quote in the paperSubstantial claim - Findingown data§ The Performance of Professional Investors · p. 32
Throughout the past decade about three-quarters of actively managed funds have failed to beat the index.
“Throughout the past decade about three-quarters of actively managed funds have failed to beat the index.”
Quote in the paperSubstantial claim - Findingown data§ The Performance of Professional Investors · p. 32
Managed funds are regularly outperformed by broad index funds, with equivalent risk.
“Managed funds are regularly outperformed by broad index funds, with equivalent risk.”
Quote in the paperSubstantial claim - Findingcitation§ The Performance of Professional Investors · p. 31
Malkiel (1995) repeated Jensen's study with data from a subsequent period and confirmed the earlier results.
“I repeated Jensen's study with data from a subsequent period and confirmed the earlier results (Malkiel, 1995).”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Malkiel, 1995
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- Findingreasoning§ The Performance of Professional Investors · p. 32
The best performing funds of the 1980s similarly underperformed during the 1990s.
“The best performing funds of the 1980s similarly underperformed during the 1990s.”
Quote in the paperSubstantial claim - Findingnone given§ The Performance of Professional Investors · p. 33
During 2000 and 2001 they did three times worse than the index.
“During 2000 and 2001 they did three times worse than the index.”
Quote in the paperSubstantial claim - Interpretationreasoning§ Short-term Momentum Including Underreaction to New Information · p. 7
Anyone who pays transactions costs is unlikely to fashion a trading strategy based on the kinds of momentum found in these studies that will beat a buy-and-hold strategy.
“Anyone who pays transactions costs is unlikely to fashion a trading strategy based on the kinds of momentum found in these studies that will beat a buy-and-hold strategy.”
Quote in the paperSubstantial claim - Premisecitation§ Short-term Momentum Including Underreaction to New Information · p. 9
Many predictable patterns seem to disappear after they are published in the finance literature.
“Many predictable patterns seem to disappear after they are published in the finance literature.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Schwert (2001)
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- Interpretationnone given§ Burton G. Malkiel Abstract · p. 5
Before the fact, there is no way in which investors can reliably exploit any anomalies or patterns that might exist.
“And before the fact, there is no way in which investors can reliably exploit any anomalies or patterns that might exist.”
Quote in the paperNot a substantial claim - Interpretationreasoning§ Burton G. Malkiel Abstract · p. 5
After predictable patterns have been discovered and publicized, they will not allow investors to earn excess returns.
“after they have been discovered and publicized, they will certainly not allow investors to earn excess returns.”
- Also stated in: § Short-term Momentum Including Underreaction to New Information · p. 9 · boosted
“certainly such patterns will never be useful for investors after they have received considerable publicity.”
Quote in the paperSubstantial claim - Also stated in: § Short-term Momentum Including Underreaction to New Information · p. 9 · boosted
- Interpretationreasoning§ Burton G. Malkiel Abstract · p. 5
Documented predictable patterns were never sufficiently robust to create profitable investment opportunities.
“I am skeptical that any of the 'predictable patterns' that have been documented in the literature were ever sufficiently robust so as to have created profitable investment opportunities”
- Also stated in: § Short-term Momentum Including Underreaction to New Information · p. 9 · plain
“My own view is that such apparent patterns were never sufficiently large or stable to guarantee consistently superior investment results”
Quote in the paperSubstantial claim - Also stated in: § Short-term Momentum Including Underreaction to New Information · p. 9 · plain
- Interpretationcitation§ Short-term Momentum Including Underreaction to New Information · p. 8
The evidence that bandwagon effects and underreaction to new information occur systematically in the stock market is often rather thin.
“while behavioural hypotheses about bandwagon effects and underreaction to new information may sound plausible enough, the evidence that such effects occur systematically in the stock market is often rather thin.”
Quote in the paperSubstantial claim - Interpretationnone given§ Burton G. Malkiel Abstract · p. 5
Markets can be efficient even if many market participants are quite irrational.
“Markets can be efficient even if many market participants are quite irrational.”
Quote in the paperNot a substantial claim - Premisecitation§ Long-run Return Reversals · p. 10
Fama and French (1988) found that 25 to 40 percent of the variation in long holding period returns can be predicted in terms of a negative correlation with past returns.
“Fama and French (1988) found that 25 to 40 percent of the variation in long holding period returns can be predicted in terms of a negative correlation with past returns.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Fama and French (1988)
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- Interpretationreasoning§ Long-run Return Reversals · p. 10
Return reversals for the market as a whole may be consistent with the efficient functioning of the market because they could result in part from the volatility of interest rates and the tendency of interest rates to be mean reverting.
“Moreover, such return reversals for the market as a whole may be quite consistent with the efficient functioning of the market since they could result, in part, from the volatility of interest rates and the tendency of interest rates to be mean reverting.”
Quote in the paperSubstantial claim- Rests on an assumption: Interest rates tend to be mean reverting.
- Interpretationcitation§ Long-run Return Reversals · p. 11
It may not be possible to profit from the tendency for individual stocks to exhibit patterns of return reversals.
“Moreover, it may not be possible to profit from the tendency for individual stocks to exhibit patterns of return reversals.”
Quote in the paperSubstantial claim - Premisecitation§ Long-run Return Reversals · p. 10
There is considerable support for long-run negative serial correlation in stock returns.
“There is indeed considerable support for long-run negative serial correlation in stock returns.”
Quote in the paperSubstantial claim - Premisecitation§ Long-run Return Reversals · p. 10
Poterba and Summers (1988) found substantial mean reversion in stock market returns at longer horizons.
“Poterba and Summers (1988) found substantial mean reversion in stock market returns at longer horizons.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Poterba and Summers (1988)
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- Interpretationreasoning§ Short-term Momentum Including Underreaction to New Information · p. 8
Whatever momentum displayed by stock prices does not appear to offer investors a dependable way to earn abnormal returns.
“Certainly, whatever momentum displayed by stock prices does not appear to offer investors a dependable way to earn abnormal returns.”
Quote in the paperSubstantial claim - Interpretationreasoning§ Burton G. Malkiel Abstract · p. 5
Markets can be efficient even if they sometimes make errors in valuation.
“Markets can be efficient in this sense even if they sometimes make errors in valuation, as was certainly true during the 1999-early 2000 internet bubble.”
Quote in the paperSubstantial claim - Interpretationreasoning§ Short-term Momentum Including Underreaction to New Information · p. 9
It is far from clear that any stock-price patterns are useful for investors in fashioning an investment strategy that will dependably earn excess returns.
“It is far from clear that any stock-price patterns are useful for investors in fashioning an investment strategy that will dependably earn excess returns.”
Quote in the paperSubstantial claim - Premisecitation§ Short-term Momentum Including Underreaction to New Information · p. 6
There is some momentum in short-run stock prices.
“There does seem to be some momentum in short-run stock prices.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Lo and MacKinlay (1999)
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- Premisecitation§ Short-term Momentum Including Underreaction to New Information · p. 6
Some stock-price signals used by technical analysts, such as head and shoulders formations and double bottoms, may have modest predictive power.
“Lo, Mamaysky and Wang (2000) also find, through the use of sophisticated nonparametric statistical techniques that can recognize patterns, some of the stock-price signals used by 'technical analysts' such as 'head and shoulders' formations and 'double bottoms', may actually have some modest predictive power.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Lo, Mamaysky and Wang (2000)
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- Premisecitation§ Short-term Momentum Including Underreaction to New Information · p. 7
The transactions costs involved in undertaking standard relative strength strategies are not profitable because of the trading costs involved in their execution.
“David Lesmond, Michael Schill, and Chunsheng Zhou (2001) find that the transactions costs involved in undertaking standard 'relative strength' strategies are not profitable because of the trading costs involved in their execution.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Lesmond, Schill, and Zhou (2001)
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- Interpretationnone given§ Burton G. Malkiel Abstract · p. 4
Whatever anomalous behavior of stock prices may exist, it does not create a portfolio trading opportunity that enables investors to earn extraordinary risk-adjusted returns.
“Moreover, the evidence is overwhelming that whatever anomalous behavior of stock prices may exist, it does not create a portfolio trading opportunity that enables investors to earn extraordinary risk adjusted returns.”
Quote in the paperNot a substantial claim - Interpretationreasoning§ Burton G. Malkiel Abstract · p. 5
Markets can be efficient even if stock prices exhibit greater volatility than can apparently be explained by fundamentals such as earnings and dividends.
“Markets can be efficient even if stock prices exhibit greater volatility than can apparently be explained by fundamentals such as earnings and dividends.”
Quote in the paperSubstantial claim - Premisereasoning§ Short-term Momentum Including Underreaction to New Information · p. 9
The January effect seems to have disappeared soon after it was discovered.
“The so-called January effect, for example, seems to have disappeared soon after it was discovered.”
Quote in the paperNot a substantial claim - Premisecitation§ The Size Effect · p. 17
The average relationship between beta and return during the 1963-1990 period was flat, not upward sloping as the capital asset pricing model predicts.
“Fama and French point out, however, that the average relationship between 'beta' and return during the 1963-1990 period was flat - not upward sloping as the capital asset pricing model predicts.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Fama and French
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- Premisecitation§ 'Value' Stocks · p. 18
Stocks with low price-earnings multiples appear to provide higher rates of return than stocks with high price-to-earnings ratios.
“Stocks with low price-earnings multiples (often called 'value' stocks) appear to provide higher rates of return than stocks with high price-to-earnings ratios as first shown by Nicholson (1960) and later confirmed by Ball (1978) and Basu (1977).”
Quote in the paperSubstantial claim0 of 3 sources checked- cites Nicholson (1960)
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- cites Ball (1978)
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- cites Basu (1977)
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- Premisecitation§ 'Value' Stocks · p. 18
Similar results have been shown for price/cash flow multiples.
“Similar results have been shown for price/cash flow multiples, where cash flow is defined as earnings plus depreciation and amortization (Hawawini and Keim, 1995).”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Hawawini and Keim, 1995
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- Interpretationreasoning§ Predicting Future Returns from Initial Dividend Yields · p. 13
Dividend yield may not be as meaningful as in the past as a useful predictor of future equity returns.
“Thus, dividend yield may not be as meaningful as in the past as a useful predictor of future equity returns.”
Quote in the paperSubstantial claim0 of 2 sources checked- cites Bagwell and Shoven, 1989
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- cites Fama and French, 2001
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- Premisecitation§ Predicting Market Returns from Initial Price-earnings Multiples · p. 15
Campbell (1987) found that term structure of interest rates spreads contained useful information for forecasting stock returns.
“Campbell (1987) found that term structure of interest rates spreads contained useful information for forecasting stock returns”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Campbell (1987)
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- Interpretationreasoning§ 'Value' Stocks · p. 20
The absence during that period of an excess return to the 'value' stocks is consistent with the results from 'actively managed' value mutual funds shown in Exhibit 3.
“The absence during that period of an excess return to the 'value' stocks is consistent with the results from 'actively managed' value mutual funds shown in Exhibit 3.”
Quote in the paperNot a substantial claim - Interpretationnone given§ Long-run Return Reversals · p. 12
These predictable patterns or anomalies are not dependable from period to period.
“The general problem with these predictable patterns or anomalies, however, is that they are not dependable from period to period.”
Quote in the paperNot a substantial claim - Premisecitation§ Predicting Market Returns from Initial Price-earnings Multiples · p. 15
Keim and Stambaugh (1986) found that risk spreads between high-yield corporate bonds and short rates had some predictive power.
“Keim and Stambaugh (1986) found that risk spreads between high-yield corporate bonds and short rates had some predictive power.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Keim and Stambaugh (1986)
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- Premisecitation§ 'Value' Stocks · p. 19
Fama and French (1997) conclude that the P/BV effect is important in many world stock markets other than the United States.
“Fama and French (1997) also conclude that the P/BV effect is important in many world stock markets other than the United States.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Fama and French (1997)
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- Premisecitation§ Predicting Future Returns from Initial Dividend Yields · p. 13
As much as 40 percent of the variance of future returns for the stock market as a whole can be predicted on the basis of the initial dividend yield of the market index.
“Depending on the forecast horizon involved, as much as 40 percent of the variance of future returns for the stock market as a whole can be predicted on the basis of the initial dividend yield of the market index.”
Quote in the paperSubstantial claim0 of 2 sources checked- cites Fama and French (1988)
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- cites Campbell and Shiller (1988)
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- Interpretationown data§ 'Value' Stocks · p. 19
The Fama-French period from the early 1960s through 1990 may have been a unique period in which value stocks rather consistently produced higher rates of return.
“Indeed, the exhibit suggests that theFama-French period from the early 1960s through 1990 may have been a unique period in which value stocks rather consistently produced higher rates of return.”
Quote in the paperSubstantial claim - Premisecitation§ The Size Effect · p. 16
Fama and French (1992) found a clear tendency for deciles made up of portfolios of smaller stocks to generate higher average monthly returns than deciles made up of larger stocks.
“The results, plotted in Exhibit 2, show a clear tendency for the deciles made up of portfolios of smaller stocks to generate higher average monthly returns than deciles made up of larger stocks.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Fama and French (1992)
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- Interpretationreasoning§ Predicting Market Returns from Initial Price-earnings Multiples · p. 15
Recent experience of investors attempting to use P/E multiples or dividend yields to predict long-horizon returns suggests a very cautious assessment of the extent to which stock market returns are predictable.
“Such results suggest to me a very cautious assessment of the extent to which stock market returns are predictable.”
Quote in the paperSubstantial claim - Interpretationreasoning§ The Size Effect · p. 17
Some studies of the small-firm effect may have been affected by survivorship bias.
“Finally, it is also possible that some studies of the small-firm effect have been affected by survivorship bias.”
Quote in the paperNot a substantial claim - Premisecitation§ Predicting Market Returns from Initial Price-earnings Multiples · p. 15
Fama and Schwert (1977) found that short-term interest rates were related to future stock returns.
“Fama and Schwert (1977) found that short-term interest rates were related to future stock returns.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Fama and Schwert (1977)
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- Premisecitation§ 'Value' Stocks · p. 20
The abnormal return of a value portfolio selected according to Fama and French (1993) criteria was a negative 0.2 percent per month over the 1993-1998 period.
“The abnormal return of such a portfolio (adjusting for beta, the capital asset pricing model measure of risk) was a negative 0.2 percent per month over the 1993-1998 period.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Schwert (2001)
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- Premisecitation§ Predicting Market Returns from Initial Price-earnings Multiples · p. 14
The same kind of predictability for the market as a whole, as was demonstrated for dividends, has been shown for price-earnings ratios.
“The same kind of predictability for the market as a whole, as was demonstrated for dividends, has been shown for price-earnings ratios.”
Quote in the paperSubstantial claim - Premisecitation§ 'Value' Stocks · p. 18
'Value' stocks have higher returns than so-called 'growth' stocks.
“There have been several studies that suggest that 'value' stocks have higher returns than so-called 'growth' stocks.”
Quote in the paperNot a substantial claim - Interpretationreasoning§ Predicting Future Returns from Initial Dividend Yields · p. 13
The ability of initial dividend yields to predict returns may simply reflect the adjustment of the stock market to general economic conditions.
“Consequently, the ability of initial yields to predict returns may simply reflect the adjustment of the stock market to general economic conditions.”
Quote in the paperSubstantial claim - Premisecitation§ Long-run Return Reversals · p. 11
There appear to be significant differences in average daily returns in countries other than the United States.
“There appear to be significant differences in average daily returns in countries other than the United States (Hawawini and Keim, 1995).”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Hawawini and Keim, 1995
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- Premisecitation§ The Size Effect · p. 16
Since 1926, small-company stocks in the United States have produced rates of return over one percentage point larger than the returns from large stocks.
“Since 1926, small-company stocks in the United States have produced rates of return over one percentage point larger than the returns from large stocks (Keim, 1983).”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Keim, 1983
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- Interpretationreasoning§ Predicting Market Returns from Initial Price-earnings Multiples · p. 15
Even if some predictability exists, it may reflect time-varying risk premiums and required rates of return for stock investors rather than an inefficiency.
“Again, even if some predictability exists, it may reflect time varying risk premiums and required rates of return for stock investors rather than an inefficiency.”
Quote in the paperSubstantial claim - Premisecitation§ 'Value' Stocks · p. 19
The ratio of stock price to book value has been found to be a useful predictor of future security returns.
“The ratio of stock price to book value, defined as the value of a firm's assets minus its liabilities divided by the number of shares outstanding, has also been found to be a useful predictor of future security returns.”
Quote in the paperSubstantial claim - Interpretationreasoning§ The Equity Risk Premium Puzzle · p. 21
The annual average almost six percent growth in corporate earnings and dividends since 1926 was hardly a foregone conclusion during a period of severe depression and world war.
“But it is well to remember that the annual average almost six percent growth in corporate earnings and dividends that we have experienced since 1926 was hardly a foregone conclusion during a period of severe depression and world war.”
Quote in the paperSubstantial claim - Interpretationreasoning§ Summarizing the 'Anomalies' and Predictable Patterns · p. 23
The published literature is likely to be biased in favor of reporting significant results.
“Moreover, the published literature is likely to be biased in favor of reporting such results.”
Quote in the paperNot a substantial claim - Interpretationcitation§ Other Illustrations of Irrational Pricing · p. 30
The 'closed-end fund puzzle' is not really a puzzle today.
“Finally, the 'closed-end fund puzzle' is not really a puzzle today.”
Quote in the paperNot a substantial claim - Interpretationreasoning§ The Market Crash of October 1987 · p. 27
No irrationality is required for share prices to suffer quite dramatic declines with the sorts of changes in interest rates and risk perceptions that occurred in October 1987.
“Clearly, no irrationality is required for share prices to suffer quite dramatic declines with the sorts of changes in interest rates and risk perceptions that occurred in October 1987.”
Quote in the paperSubstantial claim - Interpretationreasoning§ The Market Crash of October 1987 · p. 25
A number of events may rationally have increased risk perceptions during the first two weeks of October 1987.
“Moreover, a number of events may rationally have increased risk perceptions during the first two weeks of October.”
Quote in the paperNot a substantial claim - Interpretationreasoning§ The Market Crash of October 1987 · p. 25
It is not unreasonable to ascribe the sharp decline in mid-October to the cumulative effect of a number of unfavorable 'fundamental' events.
“While it is impossible to correlate each day's movement in stock prices to specific news events, it is not unreasonable to ascribe the sharp decline in mid-October to the cumulative effect of a number of unfavorable 'fundamental' events.”
Quote in the paperNot a substantial claim - Interpretationreasoning§ The Market Crash of October 1987 · p. 25
The risk that merger activity might be curtailed increased risks throughout the stock market by weakening the discipline over corporate management that potential takeovers provide.
“The risk that merger activity might be curtailed increased risks throughout the stock market by weakening the discipline over corporate management that potential takeovers provide.”
Quote in the paperNot a substantial claim - Interpretationreasoning§ Summarizing the 'Anomalies' and Predictable Patterns · p. 23
The ease of experimenting with financial databanks makes it quite likely that investigators will find some seemingly significant but wholly spurious correlation between financial variables or among financial and nonfinancial datasets.
“The ease of experimenting with financial databanks of almost every conceivable dimension makes it quite likely that investigators will find some seemingly significant but wholly spurious correlation between financial variables or among financial and nonfinancial datasets.”
Quote in the paperSubstantial claim - Interpretationreasoning§ Summarizing the 'Anomalies' and Predictable Patterns · p. 22
The more potentially profitable a discoverable pattern is, the less likely it is to survive.
“Indeed, the more potentially profitable a discoverable pattern is, the less likely it is to survive.”
Quote in the paperNot a substantial claim - Premisecitation§ Other Illustrations of Irrational Pricing · p. 29
Rasches (2001) finds clear evidence of comovement of stocks with similar ticker symbols.
“Rasches (2001) finds clear evidence of comovement of stocks with similar ticker symbols”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Rasches (2001)
Not checked in the free run.
- Interpretationreasoning§ Summarizing the 'Anomalies' and Predictable Patterns · p. 23
Many of the predictable patterns that have been discovered may simply be the result of data mining.
“Many of the predictable patterns that have been discovered may simply be the result of data mining.”
Quote in the paperNot a substantial claim - Premisecitation§ The Internet Bubble of the Late 1990s · p. 28
Noise trader risk limits the extent to which one should expect arbitrage to bring prices quickly back to rational values even in the presence of an apparent bubble.
“Shleifer (2000) has argued that noise trader risk limits the extent to which one should expect arbitrage to bring prices quickly back to rational values even in the presence of an apparent bubble.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Shleifer (2000)
Not checked in the free run.
- Interpretationreasoning§ Summarizing the 'Anomalies' and Predictable Patterns · p. 22
Many of these patterns, even if they did exist, could self-destruct in the future, as many have already done.
“many of these patterns, even if they did exist, could self-destruct in the future, as many of them have already done.”
Quote in the paperSubstantial claim - Interpretationreasoning§ The Internet Bubble of the Late 1990s · p. 28
Professional arbitrageurs will be loath to sell short a stock they believe is trading at two times its 'fundamental' value when it is always possible that some greater fools may be willing to pay three times the stock's value.
“Professional arbitrageurs will be loath to sell short a stock they believe is trading at two times its 'fundamental' value when it is always possible that some greater fools may be willing to pay three times the stock's value.”
Quote in the paperSubstantial claim - Interpretationcitation§ The Internet Bubble of the Late 1990s · p. 27
In the high-tech sector of the market, Shiller's thesis could be supported.
“I agreed that it was in the high-tech sector of the market that his thesis could be supported.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Shiller (2000)
Not checked in the free run.
- Interpretationcitation§ The Internet Bubble of the Late 1990s · p. 28
Potential arbitrageurs face additional risks.
“but also potential arbitrageurs face additional risks.”
Quote in the paperSubstantial claim - Interpretationreasoning§ The Market Crash of October 1987 · p. 24
Logical considerations can explain a sharp change in market valuations such as occurred during the first weeks of October 1987.
“But logical considerations can explain a sharp change in market valuations such as occurred during the first weeks of October 1987.”
- Also stated in: § The Market Crash of October 1987 · p. 27 · plain
“it would be a mistake to dismiss the significant change in the external environment, which can provide an entirely rational explanation for a significant decline in the appropriate values for common stocks.”
Quote in the paperSubstantial claim - Also stated in: § The Market Crash of October 1987 · p. 27 · plain
- Interpretationreasoning§ The Internet Bubble of the Late 1990s · p. 29
A flexible market system usually does a very effective job of allocating capital to its most productive uses.
“a flexible market system that usually does a very effective job of allocating capital to its most productive uses.”
Quote in the paperNot a substantial claim - Premisecitation§ Other Illustrations of Irrational Pricing · p. 29
Cooper, Dimitrov, and Rau (2001) found positive stock price reactions during 1998 and 1999 on corporate name changes when dot com was added to the corporate title.
“In a charming article entitled 'A Rose.com by Any Other Name,' Cooper, Dimitrov, and Rau (2001) found positive stock price reactions during 1998 and 1999 on corporate name changes when dot com was added to the corporate title.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Cooper, Dimitrov, and Rau (2001)
Not checked in the free run.
- Interpretationreasoning§ Summarizing the 'Anomalies' and Predictable Patterns · p. 22
Any truly repetitive and exploitable pattern that can be discovered in the stock market and can be arbitraged away will self-destruct.
“Any truly repetitive and exploitable pattern that can be discovered in the stock market and can be arbitraged away will self-destruct.”
Quote in the paperSubstantial claim - Interpretationreasoning§ The Internet Bubble of the Late 1990s · p. 29
Asset prices did remain 'incorrect' for a period of time during the Internet bubble.
“an argument can be maintained the asset prices did remain 'incorrect' for a period of time.”
Quote in the paperSubstantial claim - Interpretationreasoning§ The Internet Bubble of the Late 1990s · p. 29
The stock market may well have temporarily failed in its role as an efficient allocator of equity capital.
“Thus, the stock market may well have temporarily failed in its role as an efficient allocator of equity capital.”
Quote in the paperSubstantial claim - Interpretationreasoning§ The Market Crash of October 1987 · p. 26
Share prices can be highly sensitive as a result of rational responses to small changes in interest rates and risk perceptions.
“Share prices can be highly sensitive as a result of rational responses to small changes in interest rates and risk perceptions.”
Quote in the paperSubstantial claim - Interpretationreasoning§ Summarizing the 'Anomalies' and Predictable Patterns · p. 23
Given enough time and massaging of data series, it is possible to tease almost any pattern out of most datasets.
“Given enough time and massaging of data series, it is possible to tease almost any pattern out of most datasets.”
Quote in the paperNot a substantial claim - Premisecitation§ Other Illustrations of Irrational Pricing · p. 29
The stock of MCI Corporation (ticker symbol MCIC) moves in tandem with an unrelated closed-end bond investment fund Mass Mutual Corporate Investors (ticker symbol MCI).
“for example, the stock of MCI Corporation (ticker symbol MCIC) moves in tandem with an unrelated closed-end bond investment fund Mass Mutual Corporate Investors (ticker symbol MCI).”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Rasches (2001)
Not checked in the free run.
- Interpretationreasoning§ The Market Crash of October 1987 · p. 27
Even a very small decline in anticipated growth would have magnified these declines in warranted share valuations.
“Of course, even a very small decline in anticipated growth would have magnified these declines in warranted share valuations.”
Quote in the paperNot a substantial claim - Interpretationnone given§ The Internet Bubble of the Late 1990s · p. 28
It is almost impossible to judge with confidence what the proper fundamental value is for any security.
“Not only is it almost impossible to judge with confidence what the proper fundamental value is for any security, but also potential arbitrageurs face additional risks.”
Quote in the paperNot a substantial claim - Interpretationreasoning§ Other Illustrations of Irrational Pricing · p. 30
None of these illustrations should shake our faith that exploitable arbitrage opportunities should not exist in an efficient market.
“But none of these illustrations should shake our faith that exploitable arbitrage opportunities should not exist in an efficient market.”
Quote in the paperNot a substantial claim - Interpretationreasoning§ The Internet Bubble of the Late 1990s · p. 28
Even if all market participants rationally price common stocks as the present value of all future cash flows expected, it is still possible for clear excesses to develop.
“Even if all market participants rationally price common stocks as the present value of all future cash flows expected, it is still possible for clear excesses to develop.”
Quote in the paperSubstantial claim - Interpretationreasoning§ The Internet Bubble of the Late 1990s · p. 28
Arbitrageurs are quite likely to have short horizons since even temporary losses may induce their clients to withdraw their money.
“Arbitrageurs are quite likely to have short horizons since even temporary losses may induce their clients to withdraw their money.”
Quote in the paperSubstantial claim - Interpretationreasoning§ The Performance of Professional Investors · p. 32
Survivorship bias makes the interpretation of long-run mutual fund data sets very difficult.
“Survivorship bias makes the interpretation of long-run mutual fund data sets very difficult.”
Quote in the paperSubstantial claim - Interpretationown data§ The Performance of Professional Investors · p. 32
Even using data sets with some degree of survivorship bias, one cannot sustain the argument that professional investors can beat the market.
“But even using data sets with some degree of survivorship bias, one cannot sustain the argument that professional investors can beat the market.”
Quote in the paperSubstantial claim - Interpretationnone given§ Conclusion · p. 33
As long as stock markets exist, the collective judgment of investors will sometimes make mistakes.
“As long as stock markets exist, the collective judgment of investors will sometimes make mistakes.”
Quote in the paperSubstantial claim
- May combine two claims. 31
- Classified as probably not a substantial claim. 31
May combine two claims.
Findingcitation§ Long-run Return Reversals · p. 11In the same simulation, returns in the next period were similar for both groups, so a contrarian approach would not yield higher-than-average returns.
“However, they also found that returns in the next period were similar for both groups, so they could not confirm that a contrarian approach would yield higher-thanaverage returns.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Fluck, Malkiel and Quandt (1997)
Not checked in the free run.
May combine two claims.
Findingcitation§ Long-run Return Reversals · p. 11There was a statistically strong pattern of return reversal, but not one that implied an inefficiency in the market that would enable investors to make excess returns.
“There was a statistically strong pattern of return reversal, but not one that implied an inefficiency in the market that would enable investors to make excess returns.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Fluck, Malkiel and Quandt (1997)
Not checked in the free run.
May combine two claims.
Findingnone given§ The Size Effect · p. 17From the mid-1980s through the 1990s, there has been no gain from holding smaller stocks; in most world markets, larger capitalization stocks produced larger rates of return.
“From the mid1980s through the decade of the 1990s, there has been no gain from holding smaller stocks. Indeed, in most world markets, larger capitalization stocks produced larger rates of return.”
Quote in the paperNot a substantial claimMay combine two claims.
Findingown data§ Predicting Future Returns from Initial Dividend Yields · p. 13Investors have earned a higher rate of return from the stock market when they purchased a market basket of equities with an initial dividend yield that was relatively high, and relatively low future rates of return when stocks were purchased at low dividend yields.
“In general, the exhibit shows that investors have earned a higher rate of return from the stock market when they purchased a market basket of equities with an initial dividend yield that was relatively high, and relatively low future rates of return when stocks were purchased at low dividend yields.”
Quote in the paperSubstantial claimProbably not a substantial claim: may not pass S3 (load-bearing), S4 (based).
Findingnone given§ The Internet Bubble of the Late 1990s · p. 28Professional pension-fund and mutual fund managers over-weighted their portfolios with high-tech stocks.
“Professional pension-fund and mutual fund managers over-weighted their portfolios with high-tech stocks.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S2 (checkable), S3 (load-bearing), S4 (based).
Findingnone given§ The Internet Bubble of the Late 1990s · p. 28With hindsight, outlandish and unsupportable claims were being made regarding the growth of the Internet (and the related telecommunications structure needed to support it).
“We know now, with the benefit of hindsight, that outlandish and unsupportable claims that being made regarding the growth of the Internet (and the related telecommunications structure needed to support it).”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S4 (based).
Findingnone given§ The Internet Bubble of the Late 1990s · p. 27Even in the Internet bubble, there were no arbitrage opportunities available to rational investors before the bubble popped.
“But even here, when we know after the fact that major errors were made, there were certainly no arbitrage opportunities available to rational investors before the bubble popped.”
Quote in the paperNot a substantial claimMay combine two claims.
Findingreasoning§ Other Illustrations of Irrational Pricing · p. 29As Palm Pilot began trading, the 95 percent of its shares still owned by 3-Com had a market value considerably more than the entire market capitalization of 3-Com, implying that all the rest of its business had a negative value.
“As Palm Pilot began trading, enthusiasm for the shares was so great that the 95 percent of its shares still owed by 3-Com had a market value considerably more than the entire market capitalization of 3-Com, implying that all the rest of its business had a negative value.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S3 (load-bearing).
Findingnone given§ The Internet Bubble of the Late 1990s · p. 28Many of Wall Street's most respected security analysts, including those independent of investment banking firms, were recommending Internet stocks to clients as being fairly valued.
“Many of Wall Street's most respected security analysts, including those independent of investment banking firms, were recommending Internet stocks to the firm's institutional and individual clients as being fairly valued.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S3 (load-bearing), S4 (based).
Findingnone given§ Other Illustrations of Irrational Pricing · p. 30The 'anomaly' disappeared once 3-Com spun off more of Palm stock.
“The 'anomaly' disappeared once 3-Com spun off more of Palm stock.”
Quote in the paperNot a substantial claimMay combine two claims.
Findingnone given§ Other Illustrations of Irrational Pricing · p. 29In the Palm Pilot spin-off, initially only 5 percent of the Palm Pilot shares were distributed to the public; the other 95 percent remained on 3-Com's balance sheet.
“Initially, only 5 percent of the Palm Pilot shares were distributed to the public; the other 95 percent remained on 3-Com's balance sheet.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S3 (load-bearing), S4 (based).
Findingnone given§ The Internet Bubble of the Late 1990s · p. 29Stock prices eventually did adjust to levels that more reasonably reflected the likely present value of their cash flows.
“while stock prices eventually did adjust to levels that more reasonably reflected the likely present value of their cash flows”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S3 (load-bearing), S4 (based).
Findingnone given§ The Internet Bubble of the Late 1990s · p. 28With hindsight, projections for the rates and duration of growth of 'new economy' companies were unsustainable.
“We know now that projections for the rates and duration of growth of these for 'new economy' companies were unsustainable.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S2 (checkable), S3 (load-bearing).
Findingnone given§ The Internet Bubble of the Late 1990s · p. 28In retrospect, such professionals were egregiously wrong.
“While it is now clear in retrospect that such professionals were egregiously wrong, there was certainly no obvious arbitrage opportunity available.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S3 (load-bearing).
Findingnone given§ The Internet Bubble of the Late 1990s · p. 28It was the sharp-pencilled professional investors who argued that the valuations of high-tech companies were proper.
“But remember, it was the sharp-pencilled professional investors who argued that the valuations of high-tech companies were proper.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S4 (based).
Findingnone given§ Conclusion · p. 33Some market participants are demonstrably less than rational.
“Undoubtedly, some market participants are demonstrably less then rational.”
Quote in the paperNot a substantial claimMay combine two claims.
Interpretationreasoning§ Long-run Return Reversals · p. 10The finding of mean reversion is not uniform across studies and is quite a bit weaker in some periods than in others.
“However, the finding of mean reversion is not uniform across studies and is quite a bit weaker in some periods than it is for other periods.”
Quote in the paperSubstantial claimMay combine two claims.
Premisecitation§ Short-term Momentum Including Underreaction to New Information · p. 7Momentum investors do not realize excess returns; a sample of such investors did far worse than buy-and-hold investors even during a period with clear statistical evidence of positive momentum.
“Odean (1999) suggests that momentum investors do not realize excess returns. Quite the opposite - a sample of such investors suggests that such traders did far worse than buy-and-hold investors even during a period where there was clear statistical evidence of positive momentum.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Odean (1999)
Not checked in the free run.
May combine two claims.
Interpretationreasoning§ Short-term Momentum Including Underreaction to New Information · p. 7The statistical dependencies giving rise to momentum are extremely small and are not likely to permit investors to realize excess returns.
“The statistical dependencies giving rise to momentum are extremely small and are not likely to permit investors to realize excess returns.”
Quote in the paperSubstantial claimMay combine two claims.
Interpretationnone given§ Burton G. Malkiel Abstract · p. 2Stock markets are more efficient and less predictable than many recent academic papers would have us believe.
“I conclude that our stock markets are more efficient and less predictable than many recent academic papers would have us believe.”
- Also stated in: § Burton G. Malkiel Abstract · p. 4 · boosted
“I conclude that our stock markets are far more efficient and far less predictable than some recent academic papers would have us believe.”
Quote in the paperSubstantial claim- Also stated in: § Burton G. Malkiel Abstract · p. 4 · boosted
May combine two claims.
Premisecitation§ Short-term Momentum Including Underreaction to New Information · p. 8Many return anomalies arise only in the context of some very particular model, and the results tend to disappear when exposed to different models for expected normal returns, different methods to adjust for risk, and different statistical approaches.
“He also shows that many of the return 'anomalies' arise only in the context of some very particular model, and that the results tend to disappear when exposed to different models for expected 'normal' returns, different methods to adjust for risk, and when different statistical approaches are used to measure them.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Eugene Fama (1998)
Not checked in the free run.
May combine two claims.
Premisecitation§ Short-term Momentum Including Underreaction to New Information · p. 8Apparent underreaction to information is about as common as overreaction, and post-event continuation of abnormal returns is as frequent as post-event reversals.
“Fama finds that apparent underreaction to information is about as common as overreaction, and post-event continuation of abnormal returns is as frequent as post-event reversals.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Eugene Fama (1998)
Not checked in the free run.
May combine two claims.
Premisecitation§ Long-run Return Reversals · p. 11There appear to be a number of day-of-the-week effects; French (1980) documents significantly higher Monday returns.
“There also appear to be a number of day-of-the-week effects. For example, French (1980) documents significantly higher Monday returns.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites French (1980)
Not checked in the free run.
May combine two claims.
Premisecitation§ Long-run Return Reversals · p. 11January has been a very unusual month for stock market returns; returns from an equally weighted stock index have tended to be unusually high during the first two weeks of the year, particularly for stocks with relatively small total capitalizations.
“A number of researchers have found that January has been a very unusual month for stock market returns. Returns from an equally weighted stock index have tended to be unusually high during the first two weeks of the year. The return premium has been particularly evident for stocks with relatively small total capitalizations (Keim, 1983).”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Keim, 1983
Not checked in the free run.
May combine two claims.
Interpretationnone given§ The Equity Risk Premium Puzzle · p. 21The U.S. stock market is almost unique in that it is one of the few world markets that remained in continuous operation during the entire period, and the measured risk premium results in part from survivorship bias.
“Indeed, the U.S. stock market is almost unique in that it is one of the few world markets that remained in continuous operation during the entire period and the measured risk premium results, in part, from survivorship bias.”
Quote in the paperNot a substantial claimMay combine two claims.
Premisecitation§ Long-run Return Reversals · p. 11There appear to be some patterns in returns around the turn of the month and around holidays.
“There also appear to be some patterns in returns around the turn of the month (Lakonishok and Smidt, 1988), as well as around holidays (Ariel, 1990).”
Quote in the paperNot a substantial claim0 of 2 sources checked- cites Lakonishok and Smidt, 1988
Not checked in the free run.
- cites Ariel, 1990
Not checked in the free run.
May combine two claims.
Premisecitation§ Predicting Market Returns from Initial Price-earnings Multiples · p. 14Campbell and Shiller (1998) report that initial P/E ratios explained as much as 40 percent of the variance of future returns, and conclude that equity returns have been predictable in the past to a considerable extent.
“Campbell and Shiller (1998) report that initial P/E ratios explained as much as 40 percent of the variance of future returns. They conclude that equity returns have been predictable in the past to a considerable extent.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Campbell and Shiller (1998)
Not checked in the free run.
Probably not a substantial claim: may not pass S3 (load-bearing).
Premisecitation§ The Equity Risk Premium Puzzle · p. 21Fama and French (2002) argue that the high average realized returns result in part from large unexpected capital gains.
“Eugene Fama and Kenneth French (2002) argue that the high average realized returns result in part from large unexpected capital gains.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Fama and French (2002)
Not checked in the free run.
May combine two claims.
Premisecitation§ The Equity Risk Premium Puzzle · p. 20Using Ibbotson data from 1926 through 2001, common stocks have produced rates of return of approximately 101⁄2 percent while high grade bonds have returned only about 51⁄2 percent.
“For example, using the Ibbotson data from 1926 through 2001, common stocks have produced rates of retain of approximately 10½ percent while high grade bonds have returned only about 5½ percent.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Ibbotson data
Not checked in the free run.
Classified as probably not a substantial claim.
Premisecitation§ 'Value' Stocks · p. 19Fama and French (1993) suggest that the price-to-book value ratio may reflect another risk factor that is priced into the market and not captured by CAPM.
“For example, Fama and French (1993) suggest that the price-to-book value ratio may reflect another risk factor that is priced into the market and not captured by CAPM.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Fama and French (1993)
Not checked in the free run.
Classified as probably not a substantial claim. May combine two claims.
Premisereasoning§ The Size Effect · p. 17Fama and French suggest that size may be a far better proxy for risk than beta, and therefore their findings should not be interpreted as indicating that markets are inefficient.
“Fama and French suggest that size may be a far better proxy for risk than beta, and therefore that their findings should not be interpreted as indicating that markets are inefficient.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Fama and French
Not checked in the free run.
May combine two claims.
Premisecitation§ The Size Effect · p. 17If stocks are divided up by beta deciles, ten portfolios constructed by size display the same kind of positive relationship shown in Exhibit 2; within size deciles, the relationship between beta and return continues to be flat.
“Moreover, if stocks are divided up by beta deciles, ten portfolios constructed by size display the same kind of positive relationship shown in Exhibit 2. On the other hand, within size deciles, the relationship between beta and return continues to be flat.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Fama and French
Not checked in the free run.
May combine two claims.
Interpretationcitation§ 'Value' Stocks · p. 19These findings do not necessarily imply inefficiency; they may simply indicate failure of the CAPM to capture all the dimensions of risk.
“But these findings do not necessarily imply inefficiency. They may simply indicate failure of the CAPM to capture all the dimensions of risk.”
Quote in the paperSubstantial claimProbably not a substantial claim: may not pass S2 (checkable).
Interpretationreasoning§ Predicting Market Returns from Initial Price-earnings Multiples · p. 15It is far from clear that any of these results can be used to generate profitable trading strategies.
“And it is far from clear that any of these results can be used to generate profitable trading strategies.”
Quote in the paperNot a substantial claimMay combine two claims.
Interpretationreasoning§ Long-run Return Reversals · p. 12These non-random effects, even if dependable, are very small relative to the transactions costs involved in trying to exploit them, and do not appear to offer arbitrage opportunities that would enable investors to make excess risk-adjusted returns.
“Moreover, these non-random effects (even if they were dependable) are very small relative to the transactions costs involved in trying to exploit them. They do not appear to offer arbitrage opportunities that would enable investors to make excess risk-adjusted returns.”
Quote in the paperSubstantial claimClassified as probably not a substantial claim.
Premisecitation§ 'Value' Stocks · p. 19Fama and French (1993) argue that a three-factor asset-pricing model including price-to-book-value and size as measures of risk is the appropriate benchmark against which anomalies should be measured.
“Fama and French (1993) argue that a three-factor asset-pricing model (including price-to-book-value and size as measures of risk) is the appropriate benchmark against which anomalies should be measured.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Fama and French (1993)
Not checked in the free run.
May combine two claims.
Premisecitation§ 'Value' Stocks · p. 19Fama and French (1992) concluded that size and price-to-book-value together provide considerable explanatory power for future returns and once they are accounted for, little additional influence can be attributed to P/E multiples.
“Fama and French (1992) concluded that size and price-to-book-value together provide considerable explanatory power for future returns and once they are accounted for, little additional influence can be attributed to P/E multiples.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Fama and French (1992)
Not checked in the free run.
May combine two claims.
Interpretationown data§ The Equity Risk Premium Puzzle · p. 20The large historical equity risk premium is simply the result of a combination of perceived equity risk being considerably higher during the early years of the period and of average equity returns being much higher than had been forecast by investors.
“I believe that this finding is simply the result of a combination of perceived equity risk being considerably higher during the early years of the period and of average equity returns being much higher than had been forecast by investors.”
Quote in the paperSubstantial claimProbably not a substantial claim: may not pass S3 (load-bearing).
Premisecitation§ Other Illustrations of Irrational Pricing · p. 30Researchers such as Ross (2001) have suggested that closed-end fund discounts can largely be explained by fund management fees.
“researchers such as Ross (2001) have suggested that they can largely be explained by fund management fees.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Ross (2001)
Not checked in the free run.
Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based).
Interpretationnone given§ Summarizing the 'Anomalies' and Predictable Patterns · p. 23Datamining problems are unique to nonexperimental sciences, such as economics, which rely on statistical analysis for their insights and cannot test hypotheses by running repeated controlled experiments.
“Datamining problems are unique to nonexperimental sciences, such as economics, which rely on statistical analysis for their insights and cannot test hypotheses by running repeated controlled experiments.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S3 (load-bearing), S4 (based).
Interpretationnone given§ Summarizing the 'Anomalies' and Predictable Patterns · p. 21Some patterns based on fundamental valuation measures of individual stocks may simply reflect better proxies for measuring risk.
“some of the patterns based on fundamental valuation measures of individual stocks may simply reflect better proxies for measuring risk.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S4 (based).
Premisenone given§ The Internet Bubble of the Late 1990s · p. 28Equity valuations rest on uncertain future forecasts.
“Equity valuations rest on uncertain future forecasts.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S4 (based). May combine two claims.
Interpretationnone given§ The Performance of Professional Investors · p. 31If market prices were determined by irrational investors and systematically deviated from rational estimates of the present value of corporations, and if it was easy to spot predictable patterns in security returns or anomalous security prices, then professional fund managers should be able to beat the market.
“Surely, if market prices were determined by irrational investors and systematically deviated from rational estimates of the present value of corporations, and if it was easy to spot predictable patterns in security returns or anomalous security prices, then professional fund managers should be able to beat the market.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S3 (load-bearing), S4 (based).
Interpretationnone given§ The Internet Bubble of the Late 1990s · p. 27The remarkable market values assigned to internet and related high-tech companies seem inconsistent with rational valuation.
“Surely, the remarkable market values assigned to internet and related high-tech companies seem inconsistent with rational valuation.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S3 (load-bearing), S4 (based).
Interpretationnone given§ Other Illustrations of Irrational Pricing · p. 30The potential profits from name or ticker symbol confusion are extremely small relative to the transactions costs that would be required to exploit them.
“Moreover, the potential profits from name or ticker symbol confusion are extremely small relative to the transactions costs that would be required to exploit them.”
Quote in the paperNot a substantial claimMay combine two claims.
Interpretationnone given§ Summarizing the 'Anomalies' and Predictable Patterns · p. 23Significant effects are likely to be published in professional journals while negative results, or boring confirmations of previous findings, are relegated to the file drawer or discarded.
“Significant effects are likely to be published in professional journals while negative results, or boring confirmations of previous findings, are relegated to the file drawer or discarded.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S2 (checkable), S3 (load-bearing).
Interpretationreasoning§ The Internet Bubble of the Late 1990s · p. 28The extent of the bubble was only clear in retrospect.
“Certainly, the extent of the bubble was only clear in retrospect.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S4 (based).
Interpretationnone given§ The Internet Bubble of the Late 1990s · p. 29'Bubble' periods are the exception rather than the rule.
“Fortunately, 'bubble' periods are the exception rather than the rule”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S3 (load-bearing).
Premisecitation§ The Equity Risk Premium Puzzle · p. 21Economists such as Shiller have suggested that during the early 2000s, the ex ante equity risk premium was, if anything, irrationally too low.
“Economists such as Shiller have suggested that during the early 2000s, the ex ante equity risk premium was, if anything, irrationally too low.”
Quote in the paperNot a substantial claim0 of 1 sources checked- cites Shiller
Not checked in the free run.
Probably not a substantial claim: may not pass S4 (based).
Premisenone given§ Summarizing the 'Anomalies' and Predictable Patterns · p. 21Many 'anomalies' and statistically significant predictable patterns in stock returns have been uncovered in the literature.
“many 'anomalies' and statistically significant predictable patterns in the stock returns have been uncovered in the literature.”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S4 (based).
Interpretationnone given§ Summarizing the 'Anomalies' and Predictable Patterns · p. 21These patterns are not robust and dependable in different sample periods.
“these patterns are not robust and dependable in different sample periods”
Quote in the paperNot a substantial claimProbably not a substantial claim: may not pass S2 (checkable), S4 (based).
Interpretationnone given§ Conclusion · p. 33With the passage of time and increasing sophistication of databases and empirical techniques, we will document further apparent departures from efficiency and further patterns in the development of stock returns.
“Undoubtedly, with the passage of time and with the increasing sophistication of our databases and empirical techniques, we will document further apparent departures from efficiency and further patterns in the development of stock returns.”
Quote in the paperNot a substantial claimMay combine two claims.
Interpretationnone given§ Conclusion · p. 34Whatever patterns or irrationalities in the pricing of individual stocks that have been discovered in a search of historical experience are unlikely to persist and will not provide investors with a method to obtain extraordinary returns.
“Moreover, whatever patterns or irrationalities in the pricing of individual stocks that have been discovered in a search of historical experience are unlikely to persist and will not provide investors with a method to obtain extraordinary returns.”
Quote in the paperNot a substantial claimMay combine two claims.
Interpretationown data§ The Performance of Professional Investors · p. 33The record of professionals does not suggest that sufficient predictability exists in the stock market or that there are recognizable and exploitable irrationalities sufficient to produce excess returns.
“The record of professionals does not suggest that sufficient predictability exists in the stock market or that there are recognizable and exploitable irrationalities sufficient to produce excess returns.”
Quote in the paperSubstantial claimMay combine two claims.
Premisecitation§ Conclusion · p. 33The market cannot be perfectly efficient or there would be no incentive for professionals to uncover the information that gets so quickly reflected in market prices.
“Moreover, the market cannot be perfectly efficient or there would be no incentive for professionals to uncover the information that gets so quickly reflected in market prices, a point stressed by Grossman and Stiglitz (1980).”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Grossman and Stiglitz (1980)
Not checked in the free run.
Probably not a substantial claim: may not pass S2 (checkable).
Interpretationreasoning§ Conclusion · p. 34The end result will not be an abandonment of the belief of many in the profession that the stock market is remarkably efficient in its utilization of information.
“But I suspect that the end result will not be an abandonment of the belief of many in the profession that the stock market is remarkably efficient in its utilization of information.”
Quote in the paperNot a substantial claimClassified as probably not a substantial claim.
Interpretationreasoning§ Conclusion · p. 34If any $100 bills are lying around the stock exchanges of the world, they will not be there for long.
“If any $100 bills are lying around the stock exchanges of the world, they will not be there for long.”
Quote in the paperSubstantial claimMay combine two claims.
Premisecitation§ The Performance of Professional Investors · p. 31Jensen (1969) found that active mutual fund managers were unable to add value and tended to underperform the market by approximately the amount of their added expenses.
“He found that active mutual fund managers were unable to add value and, in fact, tended to underperform the market by approximately the amount of their added expenses.”
Quote in the paperSubstantial claim0 of 1 sources checked- cites Jensen (1969)
Not checked in the free run.
Probably not a substantial claim: may not pass S4 (based).
Interpretationnone given§ Conclusion · p. 34Periods such as 1999 where 'bubbles' seem to have existed, at least in certain sectors of the market, are the exception rather than the rule.
“Periods such as 1999 where 'bubbles' seem to have existed, at least in certain sectors of the market, are fortunately the exception rather than the rule.”
Quote in the paperNot a substantial claimMay combine two claims.
Interpretationreasoning§ Conclusion · p. 33Pricing irregularities and predictable patterns in stock returns can appear over time and even persist for short periods.
“As a result, pricing irregularities and predictable patterns in stock returns can appear over time and even persist for short periods.”
Quote in the paperSubstantial claim
The paper relies on this without support.
Interest rates tend to be mean reverting.
“the tendency of interest rates to be mean reverting”
The paper relies on this without support.
Yields on long-term Treasury bonds increased from about 9 percent to almost 10 ½ percent in the two months prior to mid-October 1987.
“yields on long-term Treasury bonds increased from about 9 percent to almost 10 ½ percent in the two months prior to mid-October.”
The paper relies on this without support.
Congress threatened to impose a 'merger tax' that would have made merger activity prohibitively expensive and could well have ended the merger boom.
“Early in the month, Congress threatened to impose a 'merger tax' that would have made merger activity prohibitively expensive and could well have ended the merger boom.”
The paper relies on this without support.
James Baker threatened to encourage a further fall in the exchange value of the dollar, increasing risks for foreign investors and frightening domestic investors.
“Also, in early October 1987, then Secretary of the Treasury James Baker had threatened to encourage a further fall in the exchange value of the dollar, increasing risks for foreign investors and frightening domestic investors as well.”
The authors state this as an assumption.
Stocks are priced as the present value of the expected future stream of dividends.
“Suppose stocks are priced as the present value of the expected future stream of dividends.”
The paper relies on this without support.
Professional fund managers are compensated with strong incentives to outperform the market.
“who often are compensated with strong incentives to outperform the market”
Claims other papers make about this one
Each is checked against this paper’s own text: does it say what the citing paper says it does?
The ability to predict certain market prices does not imply that these can be exploited to earn excess profit.
“In addition, the ability to predict certain market prices does not imply that these can be exploited to earn excess profit (Malkiel, 2003).”
From Bridging the divide in financial market forecasting: machine learners vs. financial economists (2016) · cites this paper as Malkiel, 2003
The efficient market hypothesis states that asset prices reflect all relevant information and that it is impossible to generate excessive returns through more informed investment decisions.
“More specifically, the efficient market hypothesis (EMH) suggests that current stock prices discount available information and that it is not possible to obtain systematic returns by exploiting any predictability of prices (Malkiel, 2003).”
From Bridging the divide in financial market forecasting: machine learners vs. financial economists (2016) · cites this paper as Malkiel, 2003
Transaction costs might well make our results consistent with the implications of the EMH.
“(which might well make our results consistent with the implications of the EMH (Malkiel, 2003)).”
From Bridging the divide in financial market forecasting: machine learners vs. financial economists (2016) · cites this paper as Malkiel, 2003
Self-check
Percentages, sums and reported differences re-computed from the paper’s own numbers.
Each contradiction between two passages listed here was confirmed by an independent check.
Jensen study has conflicting publication years
MinorThe text dates Jensen's mutual-fund study to 1969, while the reference entry for that study dates it to 1968.
“The first study of mutual fund performance was undertaken by Jensen (1969).”
“Jensen, Michael (1968), 'The Performance of Mutual Funds in the Period 1945-64,' Journal of Finance , vol. 23, 389-416.”
Exhibit 9 does not show the claimed 30-year distribution
MinorThe text says Exhibit 9 shows a 30-year distribution for 355 funds. The displayed Exhibit 9 instead lists the top 20 funds of the 1980s and their returns during the 1990s.
“Exhibit 9 shows the distribution of returns over a 30-year period. Of the original 355 funds, only five of them outperformed the market by two percentage points per year or more.”
“Exhibit 9 How the Top 20 Equity Funds of the 1980s Performed during the 1990s”
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- Authors
- Malkiel, B. G.
- Affiliations
- Princeton University (US)
- Corresponding author
- Malkiel, Burton G
- ORCID
- Malkiel, Burton G
- Venue
- Journal of Economic Perspectives
- Publisher
- American Economic Association
- Published
- 2003-02-01
- Volume
- 17
- Issue
- 1
- Pages
- 59-82
- ISSN
- 0895-3309 (ISSN-L)
- OpenAlex
- W2138293190
- Cited by
- 2,161
- References
- 69
- Citations by year
- 2026: 82 · 2025: 154 · 2024: 105 · 2023: 143 · 2022: 125 · 2021: 142 · 2020: 132 · 2019: 108 · 2018: 112 · 2017: 111 · 2016: 89 · 2015: 151 · 2014: 120 · 2013: 113 · 2012: 115
- FWCI
- 40.69
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- The Journal of Economic Perspectives (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Decision Sciences › Management Science and Operations Research › Stock Market Forecasting Methods
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic theories and models
- Keywords
- efficient market hypothesis, stock price predictability, behavioral finance, market efficiency, stock returns
About these checks
Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.
Claims read by deepseek-v4.1-flash under definition version 3 (extract-v3) on 2026-10-10.
Classified by jev-1.13-20260917 (gold-guideline-v0.2) on 2026-10-10.
Statistics and arithmetic are recomputed, not judged.
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