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The Inefficient Stock Market Paperback – June 23, 2001

14 customer reviews
ISBN-13: 978-0130323668 ISBN-10: 0130323667 Edition: 2nd

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Editorial Reviews

From the Back Cover

Sparked with wit and humor, this clever and insightful book provides clear evidence that the stock market is inefficient. In the author's view, models based on rational economic behavior cannot explain important aspects of market behavior. The book tackles important issues in today's financial market in a highly conversational and entertaining manner that will appeal to most readers. Chapter topics include: estimating expected return with the theories of modern finance, estimating portfolio risk and expected return with ad hoc factor models, payoffs to the five families, predicting future stock returns with the expected-return factor model, super stocks and stupid stocks, the international results, the topography of the stock market, the positive payoffs to cheapness and profitability, the negative payoff to risk, and the forces behind the technical payoffs to price-history. For anyone who wants to learn more about today's financial markets.

About the Author

Robert A. Haugen is Emeritus Professor of Finance at the University of California, Irvine. Professor Haugen has held endowed chairs at the University of Wisconsin, the University of Illinois, and the University of California. He is the author of more than 50 articles in the leading journals in finance and 13 books, including The Incredible January Effect, The New Finance, Beast on Wall Street, and Modern Investment Theory. He serves as Managing Partner to Haugen Custom Financial Systems, which licenses portfolio management software to 25 pension funds, endowments, and institutional and high-net-worth money managers. Visit Robert Haugen's Web site at: www.bobhaugen.com .

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Product Details

  • Paperback: 144 pages
  • Publisher: Prentice Hall; 2 edition (June 23, 2001)
  • Language: English
  • ISBN-10: 0130323667
  • ISBN-13: 978-0130323668
  • Product Dimensions: 6 x 0.4 x 9 inches
  • Shipping Weight: 7.2 ounces (View shipping rates and policies)
  • Average Customer Review: 4.0 out of 5 stars  See all reviews (14 customer reviews)
  • Amazon Best Sellers Rank: #884,807 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

23 of 23 people found the following review helpful By Tim Josling on December 16, 2001
Format: Paperback
Most investors would benefit from reading this book. It is a good overview of what is known about market inefficiencies and how they can be exploited.
For those who find it too down-market, he also has a weighty tome called "Modern Investment Theory" which is more thorough and more academic in tone. As an example, it describes how to combine Markowicz's techniques with factor models to exploit the inefficiencies more effectively than the approach suggested in 'What works on Wall St' etc.
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40 of 46 people found the following review helpful By skipper and mate on November 27, 1999
Format: Paperback Verified Purchase
Ever since I finished my MBA in 1985, I have suspected that the stock market is volatile and inefficient. I have studied Markowitz, the CAPM, and other elegant mathemetical models of the market that indicate the market (ex. S&P 500) cannot be beaten. This book claims it can and I believe Haugen is really on to something big.
I have been a non-financial scientific and technical analyst for a company doing business primarily with the defense department for over twenty years and found the analysis techniques presented in the book to be completely rational and apparently based on a very sound statistical approach.
This is the most refreshing approach to reality investing I have yet read. I intend to read the other two books in the trilogy.
If you want to break out of the Modern Portfolio Theory mold, read it.
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39 of 46 people found the following review helpful By Bruce_in_LA on April 17, 2000
Format: Paperback Verified Purchase
One major school of investment and finance is that markets are so efficient, or, so random, that it is virtually impossible to consistently beat the market. (Remember that half are always above average, and exactly half are always below average.) Readers of "The Experts Pick:..." columns in business magazines or the Wall Street Journal may recognize that such national investment experts fail in their "best" stock pick about half the time, or, in the case of the WSJ, a "dartboard" (literally) performs about as well as half the experts. There is a school of Finance (folks with PhDs) who work on proving this is so. Inefficient Stock Market is a fairly complex work, with lots of graphs and tables, which shows that fairly complex models with dozens of factors may beat the market - by a few percentage points, sometimes. The author is indeed very knowledgeable and writes clearly (given his sophisticated material). But don't expect a "get rich quick" theory of investment. You know, the market is too efficient to allow that ! It's not really behavioral finance (except in his criticism of the status quo). It's something of a very sophisticated approach to "value investing", with the goal of securing a few extra percentage points of return over an index fund. Note: this is not a book for starters. You should know something about the stock market and investing for the whole point of this book to make sense. A book like Lebaron's "ULTIMATE INVESTOR" could give you some background knowledge for this book.
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12 of 14 people found the following review helpful By A Customer on June 6, 2003
Format: Paperback
The Inefficient Stock Market is a nice slap in the face to Modern Finance. Getting my MBA, i was always turned off by Portfolio Management Theory because of the unrealistic assumptions made on the onset (such as everyone being rational and everyone holding an efficient market portfolio). Mr. Haugen provides a great analysis and statistical evidence to show that many of those critical assumptions are in fact wrong.
He also provides an investment strategy of sorts that outperforms the S&P 500. All hedge fund managers should read this book.
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8 of 10 people found the following review helpful By Michael Goode on June 17, 2007
Format: Paperback
This book is not:
1. A thorough critique of CAPM and APT
2. Long
3. A good explanation of why certain inefficiencies exist in the market

That being said, the book is a good essay on how to look for and find various factors that lead towards market outperformance. Haugen uses regression models and some common-sense statistical reasoning to choose which factors are actually useful.
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Format: Paperback
One of the most -- perhaps the most important book I've ever read.

A friend who was a finance professor and now works at the Fed gave me his review copy in 2002.

I have never read a book as deeply as this one. I reverse engineered almost every factor Haugen mentioned, and if I didn't know exactly what he was talking about I made my best guess and probed until I found something that worked.

Back in 2002, I would download free datasets from Reuters (which has since sold this service), dump it into spreadsheets and pound the hell out of it until I found correlations that worked in sample. These findings were used to create paper-traded portfolios to test their out of scope performance.

From this I managed to develop five, relatively uncorrelated portfolio strategies that I've been running ever since.
My 10+ year track record is proof that Haugen knew what he was writing about.

I do not have an MBA or a PhD. Basic stats is all you really need, but you have to put in the work to figure it out.

To ask "where's the beef?" in this context is like watching hundreds of cattle cars roll past, only to wonder why you can't find a steak.

It's right in front of you, but you'll have to do some work first.
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