The New Finance: Overreaction, Complexity and Uniqueness (3rd Edition) [Paperback]

Robert A. Haugen (Author)

Book Description

ISBN-10: 0130497614 | ISBN-13: 978-0130497611 | Publication Date: November 17, 2003 | Edition: 3

A supplement for junior/senior and graduate level courses in Investments, Behavioral Finance Theory, and related courses. This brief text makes the case for the inefficient market and the complexity and chaos on asset pricing, 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 contradicting market efficiency.

Editorial Reviews

From the Back Cover

In this Third Edition, Robert Haugen focuses on the evidence, causes, and history of overreactive pricing in the stock market. He argues that, unlike the other social sciences, economic models aggregate from the assumed behaviors of individuals to predictions about market pricing. These models fail to capture the complexity of human interaction. In addition, Haugen argues that each interaction is entirely unique. The complexity and the uniqueness of interactions make it impossible to generalize from the preferences of individuals to meaningful conclusions about the structure and behavior of market prices. The logical conclusion: Both rational and behavioral economics should be reconsidered.

Bob Haugen is Professor Emeritus at the University of California, Irvine. He serves as Managing Partner to Haugen Custom Financial Systems, which licenses portfolio management software to pension funds, endowments, and institutional and high-net-worth money managers.

For further study on the author's unique approach to stock market analysis, read the entire Bob Hougen series, The Inefficient Stock Market, What Pays Off and Why, and Beast on Wall Street.

Visit www.prenhall.com/haugen for additional resources. Or go to www.newfinance.com.

About the Author

In this Third Edition, Robert Haugen focuses on the evidence, causes, and history of overreactive pricing in the stock market. He argues that, unlike the other social sciences, economic models aggregate from the assumed behaviors of individuals to predictions about market pricing. These models fail to capture the complexity of human interaction. In addition, Haugen argues that each interaction is entirely unique. The complexity and the uniqueness of interactions make it impossible to generalize from the preferences of individuals to meaningful conclusions about the structure and behavior of market prices. The logical conclusion: Both rational and behavioral economics should be reconsidered.

Bob Haugen is Professor Emeritus at the University of California, Irvine. He serves as Managing Partner to Haugen Custom Financial Systems, which licenses portfolio management software to pension funds, endowments, and institutional and high-net-worth money managers.

For further study on the author's unique approach to stock market analysis, read the entire Bob Hougen series, The Inefficient Stock Market, What Pays Off and Why, and Beast on Wall Street.

Visit www.prenhall.com/haugen for additional resources. Or go to www.newfinance.com.

See all Editorial Reviews

Product Details

• Paperback: 160 pages
• Publisher: Prentice Hall; 3 edition (November 17, 2003)
• Language: English
• ISBN-10: 0130497614
• ISBN-13: 978-0130497611
• Product Dimensions: 8.8 x 5.9 x 0.5 inches
• Shipping Weight: 9.6 ounces
• Average Customer Review: 5.0 out of 5 stars  See all reviews (3 customer reviews)
• Amazon Best Sellers Rank: #1,194,092 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

2 of 2 people found the following review helpful:

5.0 out of 5 stars A Gem - Investing strategy supported with empirical analysis, August 2, 2011

By 

brentf - See all my reviews

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This review is from: New Finance, The (4th Edition) (Paperback)

I followed a fundamental investing strategy for the past 10 years and have been frustrated many times by the market's seeming disregard for value. At times I entered positions only to have the underlying continue to irrationally drop further and longer than I could have imagined. When the market did recognize value in one of these positions I was faced with the decision of when to exit, @ fair value? fair value + 10%? ride momentum?

Haugen provides some of the best explanations (using empirical data) as to what is occurring in the market and how overreaction continues to drive the valuation of equities. Finally the underlying forces that lead people to pursue momentum and technical strategies are much clearer, possibly even exposed. His explanations of reversion to mean are excellent and a very useful tool to the investor.

My only frustration was the limited information provided on 'The Real Determinants of Expected Stock Returns'. Haugen cites 70 factors and provides the top 15. If you want to know more you'll have to have very deep pockets and use his investor service which is likely out of reach for most all readers (even though he states only independent investors can successfully follow his strategy). I didn't really expect him to provide a system for playing the market - if he had I would not have bought the book - but a deeper treatment on the determinants would have made the book much more valuable. I felt that there was somewhat a conflict of interest between the author and the author's investor service - however I am grateful that he chose to publish rather than keep all of the value locked up in his service.

In the end Haugen makes the case for better understanding behavioral finance to improve ones insight into the market. Unfortunately, this rather emerging field provides only more questions. I imagine many fans of technical trading would find this book interesting but would not change their strategy if only because the 'light is better' under the technical trading area. As a fundamental investor I gained insights that will help me avoid some of my weakest decisions ( especially buying emerging value too soon). Having spent several years developing experience in fundamental analysis I have more guidance in constructing a strategy that is time and cycle driven.

The book is worth rereading several times. I can imagine that the 12 chapters aligned nicely to a semester of lectures from when Haugen taught his university classes. Each chapter is challenging enough to send the reader off reading another book just to better understand that chapter. I suspect when I finish my second reading I will look back and find this review to have missed key points.

There is a lot of schlock out there in investment writing, this is a rare gem of empirical based analysis and insightful writing that is (just about) understandable by a non-academic investor.

5 of 8 people found the following review helpful:

5.0 out of 5 stars Ground-breaking research in equity investing, October 23, 2009

By 

Cristina Lugari Duelo "Cristina Lugaro" (Stockhom, Sweden) - See all my reviews
(REAL NAME)   

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This review is from: New Finance, The (4th Edition) (Paperback)

This books presents conclusive evidence that the market is highly inefficient. The New Finance presents a golden opportunity to investing and a pioneering ivestment model that has delivered for the past 15 years. Haugen presents the arguments in a thrilling and brilliant way. I love this book and higly recomend it.

1 of 9 people found the following review helpful:

5.0 out of 5 stars Great Value-Oriented Approach to Quantitative Investment Management, October 29, 2008

By 

AK - See all my reviews

This review is from: The New Finance: Overreaction, Complexity and Uniqueness (3rd Edition) (Paperback)

Haugen's New Finance offers a value-biased review of modern investment management research. The book leaves the reader with a tangible if not implementable example of a value-oriented quantitative investment strategy.