4. Eugene Fama and Kenneth French, "Size and Book-to-Market Factors in Eamings and Retums," Journal of Finance 50, No. 1 (March 1995), pp.131-155.

5. John Cassidy, "The DecUne of Economics," The New Yorker, December 2, 1996, pp. 50-60.

6. Ibid.

7. Ibid

8. Ibid

9. See Eugene Fama, "Efficient Capital Markets: A Review of Theory and Empirical Works," Joumal ofFinance 25 (1970), pp. 383-417.

10. EMH thus creates something of a paradox, for if the professionals are important to die operation of the efficient market, if they do help to keep price synonymous with value, they must also, according to EMH, be dismal failures in the primary goal of their profession-helping their clients outperform the market.

11. J. Michael Murphy, "Efficient Markets, Index Funds, Illusion, and Reality," Joumal of Portfolio Management (Fall 1977), pp. 8-9.

12. Ibid., p. 10.

13. Ibid

14. Ibid

15. Michael C. Jensen, "The Performance of Mutual Funds in die Period 1945-1964," Journal ofFinance 23 (May 1968), pp. 389-416.

16. As indicated, this would exclude a minute number of extraordinarily skilled professionals, using extensive resources only for their own use.

17. "The Best Record Around: They Call It the Value Line Enigma, and It Is a Stumper,"/nc, Sept. 1983, p. 168.

18. Tim Loughran and Jay Ritter, "The New Issues Puzzle," Joumal of Finance 50, No. 1 (1995) pp. 23-51.

19. Eugene Fama, Lawrence Fisher, Michael Jensen, and Richard Roll, "The Adjustment of Stock Prices to New Informadon," Intemational Economic Review 10(1969), pp. 1-21.

20. Ray Ball and Philip Brown, "An Empirical Evaluadon of Accounting Numbers," Journal of Accounting Research 6 (1968), pp. 159-178.

21. Myron S. Scholes, "The Market for Securities: Substitution Versus Price Pressure and the Effects of Information on Share Prices," Joumal of Business 45 (1972), pp. 179-211.

22. Eugene Fama, "Efficient Capital Markets: II," Joumal of Finance 46 (1991), p. 1601

23. Roni Michaely, Richard H. Thaler and Kent Womack, "Price Reactions to Dividend Initiations and Omissions: Overreaction or Drift?," Working Paper, Cornell University, 1994.

24. Ibid., p. 14.

25. See Victor Bemard & Jacob Thomas, "Evidence That Stock Prices Do Not Fully Reflect the Implications of Current Eamings for Future Eamings," Journal of Accounting & Economics 13 (1990), pp. 305-340; Victor

Bemard & Jacob Thomas, "Post-Eamings-Announcement Drih: Delayed Price Response or Risk Premium?," Journal of Accounting Research 27 (S) (1989), pp. 1-36; George Foster, C. Olson & Shevlin, "Eamings Releases, Anomalies, and the Behavior of Security Returns," The Accounting Review 59 (1984), pp. 574-603.

26. Jeffery Abarbanell and Victor Bemard, "Tests of Analysts Overreaction/ Underreaction to Eamings Information as an Explanauon for Anomalous Stock Price Behavior," Journal of Finance 47 (1992), pp. 1181-1206.

27. See, for example. Tables 8-1 and 9-1.

28. Robert J. Shiller, "Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?" American Economic Review 71 (1981), pp. 421-436.

29. Ibid., pp. 432-33.

30. See David N. Dreman, Psychology and the Stock Market (New York: AMACOM, 1977), p. 221.

31. Edward M. Saunders, Jr., Testing the Efficient Market Hypothesis without Assumptions," Joumal of Portfolio Management, Summer 1994, p. 28.

32. Karl R. Popper, The Logic of Scientific Discovery (New York: Basic Books, 1959).

33. Thomas S. Kuhn, The Structure of Scientific Revolutions (Chicago: University of Chicago Press, 1970).

34. Ibid., p. 23.

35. Ibid, p. 52.

APPENDIX A

1. J. B. Cohen, E. D. Zinbarg, and A. Zeikel, Investment Analysis and Portfolio Management (Homewood, 111.: Richard D. Irwin, 1987), p. 152.

2. Edwin J. Elton and Martin J. Gruber, Modem Portfolio Theory and Investment Analysis, 5th Edition (New York: Wiley, 1995), pp. 294-295.

INDEX

Abarbanell, Jeffrey, 131, 391

accounting, 50, 51-52, 79, 104,141, 170, 267

Accustaff, 366

acquisitions, 385, 390

advantage, competitive, 1412

Alex Brown & Sons, 364, 367

Alices Adventures in Wonderland (Carroll), 69

All-Star Research Team, 88-89, 105, 107 alpha, 400n

Amati Communications, 366 American Association of Individual Investors, 203 American Depository Receipts (ADRs), 208-9

American Intemational Group, 194 American Stock Exchange (AMEX), 91,

146, 153, 170,319,338, 363 America Online, 239, 368 Analysis of Variance (ANOVA), 77 analysts, financial, 67-136

on All Star team, 88-89, 105, 107 bonuses for, 104-5 buy recommendations of, 106-7 "hit rate" of, 108, 109 institutional clients of, 88-89, 104-5 judgment of, 78-79, 107-9, 113 overconfidence of, 21, 81-83, 87, 98-99, 107-9, 114-16, 119, 126, 128-29, 130, 135, 172, 199,245, 284

reputations of, 67-68, 88-89, 104-7 research by, 74-75, 88, 89, 223-24,

246,315 salaries of, 89-90 sales force and, 88-89, 104-5 sell recommendations by, 105-7

short-term record of, 221-22, 224, 236

surveys of, 90-100, 102-3

see also forecasts; surprises, eamings anchoring bias, 233-34 A-N Research 11 , 428n Antar, Eddie, 51

art collecting, 237, 242, 279, 282, 315, 370

Ascend Communications, 55 assets:

allocation of, 57, 58

capital and, 185, 400-404, 424n, 442n

liabilities vs., 171

of mutual funds, 30-31

net, 52-53, 210

productive, 294

risk-free, 401

underiying, 53

value of, 52, 293 AST Research, 1412 astrology, 44-45, 48, 398 AT&T, 207, 340 Atkinson, T. R., 243 Atlas Tack, 321 auction houses, 242, 315 audits, 343, 344

automobile industry, 72, 74, 178-81 availability heuristic, 231-32 averages, law of, 224

Bachelier, Louis, 46

Banc One, 106

Bank Credit Analyst, 72

Bankers Trust, 63

bankruptcy, 51,319, 325,353

banks:

capitalization of, 266-67, 278 crisis in (1990), 265-69, 393