The New Finance: The Case Against Efficient Markets

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ROBERT A. HAUGEN, The New Finance: The Case Against Efficient Markets,

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Second Edition (Upper Saddle River, NJ: Prentice Hall, Inc., 1999, pp. xi, 144).

This book would be a good addition to an upper-class or M.B.A. seminars reading list. It titillates by ostensibly undermining maintained theory and it demonstrates empirical research methods in a nonthreatening manner. Since it uses a colloquial, in fact, a breezy tone, the book could inspire lively discussion and, in the hands of a careful instructor, lead to increased analytical ability among the seminar participants.

Haugen develops his argument against the existence of efficient markets in the following fashion. Risk aversion leads investors to demand higher returns for taking on increased risk, as demonstrated by the Capital Asset Pricing Model (CAPM). Research demonstrates that portfolios...