The New Finance: The Case Against Efficient Markets (2nd Edition) [Paperback]

Robert A. Haugen (Author)

Book Description

ISBN-10: 0130102288 | ISBN-13: 978-0130102287 | Publication Date: February 15, 1999 | Edition: 2nd

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

Editorial Reviews

From the Publisher

Haugen's text makes the case for the inefficient market, positioning the efficient market paradigm at the extreme end of a spectrum of possible states. It presents a comprehensive and organized collection of the evidence and the arguments which constitute a strong and persuasive case for over-reactive markets. --This text refers to an out of print or unavailable edition of this title.

From the Back Cover

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

Product Details

• Paperback: 160 pages
• Publisher: Prentice Hall; 2nd edition (February 15, 1999)
• Language: English
• ISBN-10: 0130102288
• ISBN-13: 978-0130102287
• Product Dimensions: 9 x 6 x 0.6 inches
• Shipping Weight: 10.2 ounces
• Average Customer Review: 3.5 out of 5 stars  See all reviews (10 customer reviews)
• Amazon Best Sellers Rank: #753,051 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

80 of 91 people found the following review helpful:

1.0 out of 5 stars Poorly Written and Thoughtless, March 28, 2000

By 

Vincent E. Vizachero (Houston, TX United States) - See all my reviews
(REAL NAME)   

This review is from: The New Finance: The Case Against Efficient Markets (2nd Edition) (Paperback)

"The New Finance" has basically everything going against it.

First, Haugen's writing style is annoying and childish. An engaging use of humor and metaphor are apparently beyond his skill.

Second, Haugen's story is unconvincing. The case against the efficient market hypothesis has been made much more rigorously and interestingly by other authors (e.g. Andrei Shleifer, Hersh Shefrin, and Richard Thaler, among others). Haugen in some case makes mountains out of statistical molehills and misses vital information in others. In short, Haugen is neither convincing nor complete in his critique. The field of economics covered here has a name, by the way, which Haugen never once cites: behavioral finance.

Third, in many cases Haugen is just plain wrong in his assertions. The cases are too numerous to count, but I'll give two examples from page 12. First, Haugen asserts that if no one uses the CAPM to construct their portfolios then markets cannot be efficient. This is not true. The efficient market hypothesis can hold, as Milton Friedman pointed out, if people act AS IF they use the CAPM, even if they don't really use it. Second, of evidence that markets generally react to new information quickly and without bias, Haugen says "Not true." Which is overstating the case, if not outright misrepresenting it. While there is some evidence of investor overreaction and/or underreaction, the case is far from closed. Moreover, anecdotal evidence of occasional over- and under-reaction does not prove the efficient market hypothesis to be a "Fantasy," as Haugen claims.

Fourth, and this point is somewhat related to the third, Haugen is far too full of himself. Assertions of his own intellectual superiority cloud his arguments and reasoning. This can be dangerous when dueling with men like Eugene Fama, Harry Markowitz, Bill Sharpe, and Milton Friedman. More importantly, it leaves Haugen apparently very comfortable making blanket, absolute statements about financial economics that no self-respecting, respected, or respectful economist has any business making. And I say that not only because Haugen is very frequently wrong. It also isn't very becoming. And since the material in this book is reviewed in far superior books, there is little reason to pay much attention to Haugen and his rantings.

14 of 18 people found the following review helpful:

3.0 out of 5 stars Uncompelling case, but important points, with sarcastic tone, April 17, 1999

By 

J. F Joyner "jim_joyner" (Spartanburg, SC USA) - See all my reviews
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This review is from: The New Finance: The Case Against Efficient Markets (2nd Edition) (Paperback)

I lack formal finance training, so I read a lot of finance books to expand my knowledge and thereby advance my career as a closely-held business valuation analyst. In this book, I found some important challenges to the efficient market hypothesis. The most important challenge (for my work) is the author's challenge to a small company risk premium (doesn't exist, as I understand him). The author's case against EMH is not compelling, however, and I honestly don't know whether it is the author or his case that is uncompelling. His writing style emits sarcasm; his attempt to be funny is distracting. I really didn't find much humor in comments like, "Value stocks might be plagued by sleeping monsters." He gets almost flippant (and incoherent) with this about the famous Fama and French study: "The Pope said God was dead. At least the God of CAPM. The God of the Fantasy was, apparently, very much alive." His case is not completely made, and I intend to buy another of his books to see if he makes it more completely elsewhere. I should admit that another (more important) reason I am planning to buy another book by Haugen is that he is cited in The Complete Finance Companion - The Latest in Financial Principles and Practice from the World's Best Finance Schools.

5 of 6 people found the following review helpful:

3.0 out of 5 stars A mixed-message, December 2, 2007

By 

Piety Hill Booksellers (Bakersfield, CA) - See all my reviews

This review is from: The New Finance: The Case Against Efficient Markets (2nd Edition) (Paperback)

I read Haugen's book as an finance undergraduate. At the time I found the material quite compelling. As I go about reading the book some 9 years later, I now see some of the common criticisms as valid.

As a student, the material was brought to life by an excellent professor at Michigan State University. He was able to provide additional evidence and support for Haugen's arguement. Without the benefit of a good professors insights, the book does seem arrogant to a point of distraction. Not only is arrogance an issue but Haugen's writing style is hardly even par for the academic tome it claims to be.

My opinion of the material has not changed. I still find Haugen's point of view compelling and persuasive. I just find it unfortunate that so many will be left un-convinced primarily due to issues of style. If you choose to read this book, try your best not to reject the message along with the messenger.

FYI, I believe "Qualified Opinion" from NY was wrong when he desribed how EMH means market-superior returns are possible. EMH should mean that all information is priced into securities and thus, it is impossible to beat the market. Haugen's theory rejects this and suggests that due to market innefficiencies, superior returns are possible by choosing a Value strategy. Efficient market hypothesis is also referred to as "random walk" theory because it results in an inability to chart the market. Proponents of EMH suggest selecting Index funds to simply accept the market return.