《金融投资学》教学资源（英文文献）Market efficiency, long-term returns, and behavioral finance.pdf

284 E.F.FamafJournal of Financial Economics 49 (1998)283-306 The assumption in studies that focus on short return windows is that any lag in the response of prices to an event is short-lived.There is a developing literature that challenges this assumption,arguing instead that stock prices adjust slowly to information,so one must examine returns over long horizons to get a full view of market inefficiency. If one accepts their stated conclusions,many of the recent studies on long- term returns suggest market inefficiency,specifically,long-term underreaction or overreaction to information.It is time,however,to ask whether this litera- ture,viewed as a whole,suggests that efficiency should be discarded.My answer is a solid no,for two reasons. First,an efficient market generates categories of events that individually suggest that prices over-react to information.But in an efficient market,appar- ent underreaction will be about as frequent as overreaction.If anomalies split randomly between underreaction and overreaction,they are consistent with market efficiency.We shall see that a roughly even split between apparent overreaction and underreaction is a good description of the menu of existing anomalies. Second,and more important,if the long-term return anomalies are so large they cannot be attributed to chance,then an even split between over-and underreaction is a pyrrhic victory for market efficiency.We shall find,however, that the long-term return anomalies are sensitive to methodology.They tend to become marginal or disappear when exposed to different models for expected (normal)returns or when different statistical approaches are used to measure them.Thus,even viewed one-by-one,most long-term return anomalies can reasonably be attributed to chance. A problem in developing an overall perspective on long-term return studies is that they rarely test a specific alternative to market efficiency.Instead,the alternative hypothesis is vague,market inefficiency.This is unacceptable.Like all models,market efficiency(the hypothesis that prices fully reflect available information)is a faulty description of price formation.Following the standard scientific rule,however,market efficiency can only be replaced by a better specific model of price formation,itself potentially rejectable by empirical tests. Any alternative model has a daunting task.It must specify biases in informa- tion processing that cause the same investors to under-react to some types of events and over-react to others.The alternative must also explain the range of observed results better than the simple market efficiency story;that is,the expected value of abnormal returns is zero,but chance generates deviations from zero (anomalies)in both directions. Since the anomalies literature has not settled on a specific alternative to market efficiency,to get the ball rolling,I assume reasonable alternatives must choose between overreaction or underreaction.Using this perspective,Section 2 reviews existing studies,without questioning their inferences.My conclusion is that,viewed as a whole,the long-term return literature does not identify

The assumption in studies that focus on short return windows is that any lag in the response of prices to an event is short-lived. There is a developing literature that challenges this assumption, arguing instead that stock prices adjust slowly to information, so one must examine returns over long horizons to get a full view of market inefficiency. If one accepts their stated conclusions, many of the recent studies on longterm returns suggest market inefficiency, specifically, long-term underreaction or overreaction to information. It is time, however, to ask whether this literature, viewed as a whole, suggests that efficiency should be discarded. My answer is a solid no, for two reasons. First, an efficient market generates categories of events that individually suggest that prices over-react to information. But in an efficient market, apparent underreaction will be about as frequent as overreaction. If anomalies split randomly between underreaction and overreaction, they are consistent with market efficiency. We shall see that a roughly even split between apparent overreaction and underreaction is a good description of the menu of existing anomalies. Second, and more important, if the long-term return anomalies are so large they cannot be attributed to chance, then an even split between over- and underreaction is a pyrrhic victory for market efficiency. We shall find, however, that the long-term return anomalies are sensitive to methodology. They tend to become marginal or disappear when exposed to different models for expected (normal) returns or when different statistical approaches are used to measure them. Thus, even viewed one-by-one, most long-term return anomalies can reasonably be attributed to chance. A problem in developing an overall perspective on long-term return studies is that they rarely test a specific alternative to market efficiency. Instead, the alternative hypothesis is vague, market inefficiency. This is unacceptable. Like all models, market efficiency (the hypothesis that prices fully reflect available information) is a faulty description of price formation. Following the standard scientific rule, however, market efficiency can only be replaced by a better specific model of price formation, itself potentially rejectable by empirical tests. Any alternative model has a daunting task. It must specify biases in information processing that cause the same investors to under-react to some types of events and over-react to others. The alternative must also explain the range of observed results better than the simple market efficiency story; that is, the expected value of abnormal returns is zero, but chance generates deviations from zero (anomalies) in both directions. Since the anomalies literature has not settled on a specific alternative to market efficiency, to get the ball rolling, I assume reasonable alternatives must choose between overreaction or underreaction. Using this perspective, Section 2 reviews existing studies, without questioning their inferences. My conclusion is that, viewed as a whole, the long-term return literature does not identify 284 E.F. Fama/Journal of Financial Economics 49 (1998) 283—306

E.F.FamafJournal of Financial Economics 49 (1998)283-306 285 overreaction or underreaction as the dominant phenomenon.The random split predicted by market efficiency holds up rather well. Two recent papers,Barberis et al.(1998)and Daniel et al.(1997),present behavioral models that accommodate overreaction and underreaction.To their credit,these models present rejectable hypotheses.Section 3 argues that,not surprisingly,the two behavioral models work well on the anomalies they are designed to explain.Other anomalies are,however,embarrassing.The problem is that both models predict post-event return reversals in response to long-term pre-event abnormal returns.In fact,post-event return continuation is about as frequent as reversal-a result that is more consistent with market efficiency than with the two behavioral models. Section 4 examines the problems in drawing inferences about long-term returns.Foremost is an unavoidable bad-model problem.Market efficiency must be tested jointly with a model for expected (normal)returns,and all models show problems describing average returns.The bad-model problem is ubiqui- tous,but it is more serious in long-term returns.The reason is that bad-model errors in expected returns grow faster with the return horizon than the volatility of returns.Section 4 also argues that theoretical and statistical considerations alike suggest that formal inferences about long-term returns should be based on averages or sums of short-term abnormal returns(AARs or CARs)rather than the currently popular buy-and-hold abnormal returns(BHARs). In categorizing studies on long-term returns,Sections 2 and 3 do not question their inferences.Dissection of individual studies takes place in Section 5.The bottom line is that the evidence against market efficiency from the long-term return studies is fragile.Reasonable changes in the approach used to measure abnormal returns typically suggest that apparent anomalies are methodological illusions. 2.Overreaction and underreaction:An overview One of the first papers on long-term return anomalies is DeBondt and Thaler (1985).They find that when stocks are ranked on three-to five-year past returns, past winners tend to be future losers,and vice versa.They attribute these long-term return reversals to investor overreaction.In forming expectations, investors give too much weight to the past performance of firms and too little to the fact that performance tends to mean-revert.DeBondt and Thaler seem to argue that overreaction to past information is a general prediction of the behavioral decision theory of Kahneman and Tversky (1982).Thus,one could take overreaction to be the prediction of a behavioral finance alternative to market efficiency.For the most part,however,the anomalies literature has not accepted the discipline of an alternative hypothesis. An exception is Lakonishok et al.(1994).They argue that ratios involving stock prices proxy for past performance.Firms with high ratios of earnings to

overreaction or underreaction as the dominant phenomenon. The random split predicted by market efficiency holds up rather well. Two recent papers, Barberis et al. (1998) and Daniel et al. (1997), present behavioral models that accommodate overreaction and underreaction. To their credit, these models present rejectable hypotheses. Section 3 argues that, not surprisingly, the two behavioral models work well on the anomalies they are designed to explain. Other anomalies are, however, embarrassing. The problem is that both models predict post-event return reversals in response to long-term pre-event abnormal returns. In fact, post-event return continuation is about as frequent as reversal — a result that is more consistent with market efficiency than with the two behavioral models. Section 4 examines the problems in drawing inferences about long-term returns. Foremost is an unavoidable bad-model problem. Market efficiency must be tested jointly with a model for expected (normal) returns, and all models show problems describing average returns. The bad-model problem is ubiquitous, but it is more serious in long-term returns. The reason is that bad-model errors in expected returns grow faster with the return horizon than the volatility of returns. Section 4 also argues that theoretical and statistical considerations alike suggest that formal inferences about long-term returns should be based on averages or sums of short-term abnormal returns (AARs or CARs) rather than the currently popular buy-and-hold abnormal returns (BHARs). In categorizing studies on long-term returns, Sections 2 and 3 do not question their inferences. Dissection of individual studies takes place in Section 5. The bottom line is that the evidence against market efficiency from the long-term return studies is fragile. Reasonable changes in the approach used to measure abnormal returns typically suggest that apparent anomalies are methodological illusions. 2. Overreaction and underreaction: An overview One of the first papers on long-term return anomalies is DeBondt and Thaler (1985). They find that when stocks are ranked on three- to five-year past returns, past winners tend to be future losers, and vice versa. They attribute these long-term return reversals to investor overreaction. In forming expectations, investors give too much weight to the past performance of firms and too little to the fact that performance tends to mean-revert. DeBondt and Thaler seem to argue that overreaction to past information is a general prediction of the behavioral decision theory of Kahneman and Tversky (1982). Thus, one could take overreaction to be the prediction of a behavioral finance alternative to market efficiency. For the most part, however, the anomalies literature has not accepted the discipline of an alternative hypothesis. An exception is Lakonishok et al. (1994). They argue that ratios involving stock prices proxy for past performance. Firms with high ratios of earnings to E.F. Fama/Journal of Financial Economics 49 (1998) 283—306 285

286 E.F.FamafJournal of Financial Economics 49 (1998)283-306 price(E/P),cashflow to price(C/P),and book-to-market equity (BE/ME)tend to have poor past earnings growth,and firms with low E/P,C/P,and BE/ME tend to have strong past earnings growth.Because the market over-reacts to past growth,it is surprised when earnings growth mean reverts.As a result,high E/P,C/P,and BE/ME stocks(poor past performers)have high future returns, and low E/P,C/P,and BE/ME stocks(strong past performers)have low future returns. I also classify the poor long-term post-event returns of initial public offerings (IPOs)(Ritter,1991;Loughran and Ritter,1995)and seasoned equity offerings (SEOs)(Loughran and Ritter,1995;Spiess and Affleck-Graves,1995)in the overreaction camp.Mitchell and Stafford(1997)show that SEOs have strong stock returns in the three years prior to the issue.It seems safe to presume that these strong returns reflect strong earnings.It also seems safe to presume that IPOs have strong past earnings to display when going public.If the market does not understand that earnings growth tends to mean revert,stock prices at the time of the equity issue(IPO or SEO)are too high.If the market only gradually recognizes its mistakes,the overreaction to past earnings growth is corrected slowly in the future.Finally,Dharan and Ikenberry(1995)argue that the long- term negative post-listing abnormal stock returns of firms that newly list on the NYSE or Amex are due to overreaction.Firms list their stocks to take advant- age of the market's overreaction to their recent strong performance. If apparent overreaction was the general result in studies of long-term returns, market efficiency would be dead,replaced by the behavioral alternative of DeBondt and Thaler(1985).In fact,apparent underreaction is about as fre- quent.The granddaddy of underreaction events is the evidence that stock prices seem to respond to earnings for about a year after they are announced(Ball and Brown,1968;Bernard and Thomas,1990).More recent is the momentum effect identified by Jegadeesh and Titman(1993);stocks with high returns over the past year tend to have high returns over the following three to six months. Other recent event studies also produce long-term post-event abnormal returns that suggest underreaction.Cusatis et al.(1993)find positive post-event abnormal returns for divesting firms and the firms they divest.They attribute the result to market underreaction to an enhanced probability that,after a spinoff, both the parent and the spinoff are likely to become merger targets,and the recipients of premiums.Desai and Jain (1997)and Ikenberry et al.(1996)find that firms that split their stock experience long-term positive abnormal returns both before and after the split.They attribute the post-split returns to market underreaction to the positive information signaled by a split.Lakonishok and Vermaelen (1990)find positive long-term post-event abnormal returns when firms tender for their stock.Ikenberry et al.(1995)observe similar results for open-market share repurchases.The story in both cases is that the market under-reacts to the positive signal in share repurchases about future perfor- mance.Finally,Michaely et al.(1995)find that stock prices seem to under-react

price (E/P), cashflow to price (C/P), and book-to-market equity (BE/ME) tend to have poor past earnings growth, and firms with low E/P, C/P, and BE/ME tend to have strong past earnings growth. Because the market over-reacts to past growth, it is surprised when earnings growth mean reverts. As a result, high E/P, C/P, and BE/ME stocks (poor past performers) have high future returns, and low E/P, C/P, and BE/ME stocks (strong past performers) have low future returns. I also classify the poor long-term post-event returns of initial public offerings (IPOs) (Ritter, 1991; Loughran and Ritter, 1995) and seasoned equity offerings (SEOs) (Loughran and Ritter, 1995; Spiess and Affleck-Graves, 1995) in the overreaction camp. Mitchell and Stafford (1997) show that SEOs have strong stock returns in the three years prior to the issue. It seems safe to presume that these strong returns reflect strong earnings. It also seems safe to presume that IPOs have strong past earnings to display when going public. If the market does not understand that earnings growth tends to mean revert, stock prices at the time of the equity issue (IPO or SEO) are too high. If the market only gradually recognizes its mistakes, the overreaction to past earnings growth is corrected slowly in the future. Finally, Dharan and Ikenberry (1995) argue that the longterm negative post-listing abnormal stock returns of firms that newly list on the NYSE or Amex are due to overreaction. Firms list their stocks to take advantage of the market’s overreaction to their recent strong performance. If apparent overreaction was the general result in studies of long-term returns, market efficiency would be dead, replaced by the behavioral alternative of DeBondt and Thaler (1985). In fact, apparent underreaction is about as frequent. The granddaddy of underreaction events is the evidence that stock prices seem to respond to earnings for about a year after they are announced (Ball and Brown, 1968; Bernard and Thomas, 1990). More recent is the momentum effect identified by Jegadeesh and Titman (1993); stocks with high returns over the past year tend to have high returns over the following three to six months. Other recent event studies also produce long-term post-event abnormal returns that suggest underreaction. Cusatis et al. (1993) find positive post-event abnormal returns for divesting firms and the firms they divest. They attribute the result to market underreaction to an enhanced probability that, after a spinoff, both the parent and the spinoff are likely to become merger targets, and the recipients of premiums. Desai and Jain (1997) and Ikenberry et al. (1996) find that firms that split their stock experience long-term positive abnormal returns both before and after the split. They attribute the post-split returns to market underreaction to the positive information signaled by a split. Lakonishok and Vermaelen (1990) find positive long-term post-event abnormal returns when firms tender for their stock. Ikenberry et al. (1995) observe similar results for open-market share repurchases. The story in both cases is that the market under-reacts to the positive signal in share repurchases about future performance. Finally, Michaely et al. (1995) find that stock prices seem to under-react 286 E.F. Fama/Journal of Financial Economics 49 (1998) 283—306

E.F.FamafJournal of Financial Economics 49 (1998)283-306 287 to the negative information in dividend omissions and the positive information in initiations. Some long-term return anomalies are difficult to classify.For example, Asquith (1983)and Agrawal et al.(1992)find negative long-term abnormal returns to acquiring firms following mergers.This might be attributed to market underreaction to a poor investment decision(Roll,1986)or overreaction to the typically strong performance of acquiring firms in advance of mergers, documented in Mitchell and Stafford(1997).Ikenberry and Lakonishok(1993) find negative post-event abnormal returns for firms involved in proxy contests. One story is that stock prices under-react to the poor performance of these firms before the proxy contest,but another is that prices over-react to the information in a proxy that something is likely to change. Given the ambiguities in classifying some anomalies,and given that the review above is surely incomplete,I shall not do a count of underreaction versus overreaction studies.The important point is that the literature does not lean cleanly toward either as the behavioral alternative to market efficiency.This is not lost on behavioral finance researchers who acknowledge the issue: We hope future research will help us understand why the market appears to overreact in some circumstances and underreact in others.(Michaely et al., 1995,p.606). The market efficiency hypothesis offers a simple answer to this question -chance.Specifically,the expected value of abnormal returns is zero,but chance generates apparent anomalies that split randomly between overreaction and underreaction. Is the weight of the evidence on long-term return anomalies so overwhelming that market efficiency is not a viable working model even in the absence of an alternative that explains both under-and overreaction?My answer to this question is no,for three reasons. First,I doubt that the literature presents a random sample of events.Splashy results get more attention,and this creates an incentive to find them.That dredging for anomalies is a rewarding occupation is suggested by the fact that the anomalies literature shows so little sensitivity to the alternative hypothesis problem.The same authors,viewing different events,are often content with overreaction or underreaction,and are willing to infer that both warrant rejecting market efficiency. Second,some apparent anomalies may be generated by rational asset pricing. Fama and French(1996)find that the long-term return reversals of DeBondt and Thaler(1985)and the contrarian returns of Lakonishok et al.(1994)are captured by a multifactor asset pricing model.In a nutshell,return covariation among long-term losers seems to be associated with a risk premium that can explain why they have higher future average returns than long-term winners. Fama and French(1996)discuss the quarrels with their multifactor model,but

to the negative information in dividend omissions and the positive information in initiations. Some long-term return anomalies are difficult to classify. For example, Asquith (1983) and Agrawal et al. (1992) find negative long-term abnormal returns to acquiring firms following mergers. This might be attributed to market underreaction to a poor investment decision (Roll, 1986) or overreaction to the typically strong performance of acquiring firms in advance of mergers, documented in Mitchell and Stafford (1997). Ikenberry and Lakonishok (1993) find negative post-event abnormal returns for firms involved in proxy contests. One story is that stock prices under-react to the poor performance of these firms before the proxy contest, but another is that prices over-react to the information in a proxy that something is likely to change. Given the ambiguities in classifying some anomalies, and given that the review above is surely incomplete, I shall not do a count of underreaction versus overreaction studies. The important point is that the literature does not lean cleanly toward either as the behavioral alternative to market efficiency. This is not lost on behavioral finance researchers who acknowledge the issue: We hope future research will help us understand why the market appears to overreact in some circumstances and underreact in others. (Michaely et al., 1995, p. 606). The market efficiency hypothesis offers a simple answer to this question — chance. Specifically, the expected value of abnormal returns is zero, but chance generates apparent anomalies that split randomly between overreaction and underreaction. Is the weight of the evidence on long-term return anomalies so overwhelming that market efficiency is not a viable working model even in the absence of an alternative that explains both under- and overreaction? My answer to this question is no, for three reasons. First, I doubt that the literature presents a random sample of events. Splashy results get more attention, and this creates an incentive to find them. That dredging for anomalies is a rewarding occupation is suggested by the fact that the anomalies literature shows so little sensitivity to the alternative hypothesis problem. The same authors, viewing different events, are often content with overreaction or underreaction, and are willing to infer that both warrant rejecting market efficiency. Second, some apparent anomalies may be generated by rational asset pricing. Fama and French (1996) find that the long-term return reversals of DeBondt and Thaler (1985) and the contrarian returns of Lakonishok et al. (1994) are captured by a multifactor asset pricing model. In a nutshell, return covariation among long-term losers seems to be associated with a risk premium that can explain why they have higher future average returns than long-term winners. Fama and French (1996) discuss the quarrels with their multifactor model, but E.F. Fama/Journal of Financial Economics 49 (1998) 283—306 287