Contents
Foreword60
1TheMagicofMarkets68
1.1Thevalueofmarketsinsociety...68
1.2Thejointequilibriumproblem....71
1.3Whatdowemeanbymarketeciency..........73
1.4Theconceptualcaseforeciency.77
1.5Canmispricingexistinequilibrium.78
1.6Costlyinformationalarbitrage....81
1.7The“AsIf”defenseofmarketeciency..........83
2TheNoiseTraderApproachtoFinance:
AnAlternativetotheEMH89
2.1Overview...90
2.2TheShillermodel..........92
2.3Thenoisetraderapproachtonance97
2.4Implicationsformarket-basedresearch...........101
2.5Researchdesignissues........105
3NoiseTradingandInvestorSentiment110
3.1Investorsentimentandarbitragecosts...........112
3.2Whatmovesstockprices......114
ii
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3.3Thequestforsentiment—earlywork...........116
3.4Behavioralroots:Theoriginsofinvestorsentiment....119
3.5Capitalowsandstockreturns...124
3.6Investorclientelesandsystemicnoise128
3.7Measuringinvestorsentiment....133
3.8Firm-levelsentiment.........136
3.9Moodsandemotions........137
4MeasuringFirmValue:TheRoleofFundamentalAnalysis144
4.1Overview...145
4.2BenjaminGrahamasaquant....146
4.3Abitoftheorymighthelp.....150
4.4Thetwosidesofvalueinvesting..154
4.5Lessonsfromtheeld........155
4.6Empiricalevidencefromacademicstudies.........157
4.7Whydoesvalueinvestingcontinuetowork........165
5ArbitrageCosts175
5.1Whatthesmartmoneysees.....179
5.2Strategyidenticationandverication...........182
5.3Theroleofcomplexity........187
5.4Implementationandexecutioncosts195
5.5Fundingandnancingconstraints.199
6ResearchMethodology:PredictabilityinAssetReturns207
6.1Exposuretoriskfactors.......208
6.2Ifitlookslikerisk...........212
6.3Short-windowreturns........214
6.4Othernon-return-basedmetrics...216
6.5Sub-periodsandsub-populations..217
6.6Delistingandsurvivorshipbiases..219
6.7Size,illiquidityandexploitabilityissues...........220
6.8Gaugingeconomicsignicance...222
6.9Testingstatisticalsignicance....224
6.10Long-windowreturns........226
6.11Incrementalcontribution......228
iv
Acknowledgements232
References233。