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149

Noles 443

1. E. P. Ehrbar, "Giant Payoffs From Midget Stocks," Fortune. June 30, 1980.

2. Rolf W. Banz, "The Relation between Retum and Market Value of Common Stocks," Journal of Financial Economics 9 (March 1981), pp. 3-18.

3. Pension and Investments Age, February 2, 1981.

4. Trading for each stock in the Banz sample is only reported on the last day of the quarter. The 58% figure is an average of the last day of the 20 quarters in the 1931 to 1935 period. From spot checks with the original stock pages, the pattem looks consistent.

5. Marc R. Reinganum, "Misspecification of Capital Asset Pricing: Empirical Anomalies Based on Earnings Yields and market Values," Ph.D. Thesis, University of Chicago, 1979; Marc R. Reinganum, "Misspecification of Capital Asset Pricing: Empirical Anomalies Based on Earnings Yields and market Values," Journal of Financial Economics (March, 1981), pp. 19-46.

6. E. F. Ehrbar, op. cit.

7. John Cunnif, "A Profitable Crack in the Efficient Market," Associated Press, February 16, 1984.

8. Tim Loughran and Jay Ritter, "The New Issues Puzzle," Joumal of Finance 50 (March, 1995), pp. 23-51.

9. Pension and Investments, February 15, 1982, p. 34.

10. Maurice Bamfather, "We Have a Tie-in to Mecca," Forbes, December 21, 1981.

11. Ibid

12. Marc Reinganum, "Revival of the Small Firm Effect," Joumal of Portfolio Management, Spring 1992.

13. The market value of each firm was measured at the beginning of each year. The breakpoints are given here in 1995 dollars. In each year, the assignments to market-cap quintiles were based on information that would have been available to investors at the time.

14. Transaction costs will likely wipe out any marginally greater retum of the middle or second highest quintiles in the two smallest market cap groups.

15. Sanjoy Basu, "The Relationship Between Earnings Yield, Market Value and Retum for NYSE Common Stocks; Further Evidence," Joumal of Financial Economics 12 (June, 1983), pp. 129-156.

16. Jay Ritter, "The Long-Run Performance of Initial Public Offerings," Journal of Finance 46, March 1991.

17. The National Association of Securities Dealers (N.A.S.D.) dates from 1939, when all firms that sold securities were required to join. It now has 5,400 securities firms as members, the vast majority of them tiny. Most trade in bonds or mutual funds, not stocks. Nasdaq is owned by the N.A.S.D. The Nasdaq stock market was started a quarter of a century ago as the National Association of Securities Dealers Automated Quotation System, Though a subsidiary of die N.A.S.D., it had its own board of di-



rectors. Until recently there was little representation by anyone but brokerage firms, although presumably its main responsibility was to investors.

18. Jeffrey Taylor, "A Fairer Nasdaq:," Wall Street Joumal, August 29, 1996, p.Cl.

19. Scott Paltrow, Los Angeles Times, October 23, 1994, p. DI.

20. New York Times, Dec. 12, 1997, p. D8.

21. Anita Raghaven and Jeffrey Taylor," Will NASD Accords Transform Nasdaq Markets?," Wall Street Joumal, August 8, 1996, p. Cl.

22. New York Times, June 7, 1997, p. 31.

23. Anita Ragharen and Jeffrey Taylor, op. cit.

CHAPTER 16 77 Zany World of Rationality

1. Lee Hockstader, "Russians Blame Leaders for Stock Funds Crash; Govemment Becomes Scapegoat When Dreams of Capitalist Riches Run into Reality," Washington Post, July 31, 1994, p. A27.

2. Adi Ignatius, "As Pyrainid Scheme in Russia Begins to Collapse, Rubble May Trap Many," Wall Street Joumal, July 27, 1994, p. A6.

3. Fred Hiatt, "The Russian Equivalent of Swampland in Florida," Washington Post, November 5, 1994, p. Al.

4. Lee Hockstader, "Stock Fund Collapses in Russia: At Least 1 Million Lose Savings in Crash," Washington Post, July 30, 1994, p. Al 1.

5. Steven Erlanger, "Russian Tied to Stock Scheme Gains Election to Parliament," New York Times, November 1, 1994, p. A14.

6. The $ - index calculates risk-adjusted retums, considering a high retum with low beta much higher than one with normal beta.

7. Christopher Farrell, Robert Neff, Igor Reichlin, Richard A. Melcher, Charles Hoots, and Pete Engardio, "Those Empty Spaces Wont Fill Up Anytime Soon," Business Week August 31, 1992, p. 72.

8. Carol J. Loomis, "Victims of the Real Estate Crash," Fortune, May 18, 1992, p. 70.

9. Ibid; and Bill McConnell, "GAO puts Bailout Tab at Nearly $500 Billion," American Banker, July 15, 1996, p. 3.

10. Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds (New York: The Noonday Press, 1974), pp. xix-xx. Originally pubhshed in London in 1841 by Richard Bentley.

11. Gustave Le Bon, The Crowd (New York: Viking Press, 1960), pp. 41-61.

12. Ibid, p. 70

13. Carl Sandburg, Abraham Lincoln: Volume 2, 1861-1864 (New York: Dell, 1970), p. 410.

14. Leon Festinger, "A Theory of Social Comparison Processes," Human Relations 1 (1954), pp. 117-140.

15. Muzafer Sherif and Carolyn W. Sherif, Social Psychology (New York: & Row, 1969), pp. 208-209.

16. William Samuels, Contemporary Social Psychology (New York: Random House, 1969).



17. Joseph Alper, "Whats New in Biotechnology," New York Times. November 18, 1984, p. D13.

18. Robert J. Shiller, "Initial Pubhc Offerings: Investor Behavior and Under-pricing," photocopied, Yale University, September 24, 1989.

19. Tim Loughran and Jay Ritter, "The New Issues Puzzle," Journal of Finance 50(1994), pp. 23-51.

20. Jay R. Ritter, "The Long Run Performance of IPOs," Joumal of Finance 46 (March 1991), pp. 3-28.

21. Nejat Seyhun, "Information Asymmetry and Price Performance of IPOs." Working Paper, University of Michigan, 1992.

22. Mario Levis, "The Long-Run Performance of Initial Public Offerings: The UK Experience 1980-88," Financial Management 22 (1993), pp. 28-41.

23. Bharat Jain and Omesh Kini, "The Post-Issue Operating Performance of IPO Firms," Journal of Finance 49 (1994), pp. 1699-1726.

24. Tim Loughran and Jay Ritter, "The New Issues Puzzle," Journal of Finance 50, no. 1 (1995), p. 46.

25. Richard Stem & Paul Bomstein, "Why New Issues Are Lousy Investments," Forbes, December 2, 1985, p. 152.

26. John Curran, "New Life in New Issues," Fortune, June 24, 1985, p. 119.

27. Scott Reeves, "From Sizzle to Fizzle," Barrons, March 31, 1997, p. 21.

28. Christopher Farrell, "The Boom in IPOs," Business Week, December 18, 1995, p. 64.

29. Browning, "Aggressive Growth Stocks Chum the Market," Wall Street Joumal, June 13, 1996, p. CI.

30. Julie Schmit, "Fast Track to Riches: High-Tech Payoff: Boom! You Are Rich," USA Today, December, 26, 1995, p. 1 A.

31. Steve Kaufman, "Investing in Intemet Stocks Can Pose a Big Risk," Dayton Daily News, August 14, 1995, p. 18.

32. Gary Weiss, "Sidestepping Danger Before You Hear the Rattle," Business Week, December 25, 1995, p. 90.

33. Ibid

34. Edward Wyatt, "Market Watch: A Lesson. This Time Weve Got It on Tape," New York Times, December 10, 1995, p. DI.

35. Ibid

36. Ibid

37. In chapter 10, we looked at some relatively new psychological research that at least partially accounts for the behavior witnessed above.

CHAPTER 17 Beyond Efficient Markets

1. George Santayana, "Flux and Constancy in Human Nature," The Life of Reason I (1905-1906), chapter 12.

2. Milton Friedman, " The Methodology of Positive Economics." in Essays on Positive Economics (Chicago: University of Chicago Press, 1953).

3. Paul A. Cootner, Industrial Management Review, Spring 1962, p. 25.



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