Customer Reviews

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

5 star:		(3)
4 star:		(3)
3 star:		(2)
2 star:		(0)
1 star:		(2)

 

 

"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.

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.

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.

It is nice to have someone spell out exactly why the market can be inefficient. In this regard, Robert Haugen makes a valient and concise attempt to tackle the subject. A quick and easy read that will help articulate that which is intuitive.

This book is controversial.
It defends the opposite of what almost all mainstream financial academics belive : Markets are inneficient and somehow forecastable by a money manager with proper analysis tools. Thats exactly why this book is important for a serious finance thinker. It forces one to rethink key assumptions - yes, Haugen's arguments, reasoning and numbers are convincing - for a better understanding.
An open minded reader with adequate finance knowledge (beginners wont benefit much) will truly benefit from this challenging book, be it changing his mind/view on finance (accepting some of haugen's ideas), or simply reassuring his own previous belifs/approach.

The author's humor is not always funny and is mostly used to fill up the pages, but the contents are interesting and enlightening. It gave me courage to continue what I was already doing in the stock market, buying "losers". A must read for everybody interested in investing or finance !!

Haugen takes it best shot against the Efficient Markets hypothesis. He states his case with analytical precision, wit and a good sense of humour. Probably, he exaggerates the novelty of his critics: whoever is updated on finance theory and practice already knows what Haugen has to say. Anyway, it is worth reading it.

This easy to read and humorous criticism of modern investment philosophy will make you question everything you thought was a "gimme" in the world of investments. Extensive background evidence and a break with conventional thinking make this book a requirement investors from the small personal investor to large pension fund managers. The author takes the quantitative elements of finance and wraps investor psychology around it.

The author may or may not be right (I think he's probably more right than wrong). However, his tone is offensive, his citing of others is selective and misleading, and he's just plain not a nice man.

Only a courageous professor willing to really find truth would write this insightful book. The fact that he also has a great sense of humor is to be greatly commended. This man deserves a Nobel Prize. It APPEARS THAT HE WILL BE ABLE TO FUND IIT!