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Market Efficiency and Value Line's Record

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  • Huberman, Gur
  • Kandel, Shmuel

Abstract

The Value Line investment record is frequently interpreted as evidence of market inefficiency. This article reconciles the record with market efficiency as one implication of a model that assumes a semistrong form of market efficiency and autoregressive state variables, which need not be identified. In the model, expected returns on assets depend on these state variables and can vary over time. Value Line's rankings are assumed to reflect knowledge of these state variables. The Value Line data are consistent with the model's implications, suggesting the Value Line's rankings predict systematic marketwide factors. The purported abnormal returns of positions based on Value Line's rankings are seen as compensation for the systematic risk associated with these positions. Copyright 1990 by the University of Chicago.

Suggested Citation

  • Huberman, Gur & Kandel, Shmuel, 1990. "Market Efficiency and Value Line's Record," The Journal of Business, University of Chicago Press, vol. 63(2), pages 187-216, April.
  • Handle: RePEc:ucp:jnlbus:v:63:y:1990:i:2:p:187-216
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    Cited by:

    1. McGoun, Elton G., 1996. "Fashion and finance," International Review of Financial Analysis, Elsevier, vol. 5(1), pages 65-78.
    2. Gur Huberman & Dominika Halka, 2001. "Systematic Liquidity," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(2), pages 161-178, June.
    3. Ferson, Wayne E. & Sarkissian, Sergei & Simin, Timothy, 2008. "Asset Pricing Models with Conditional Betas and Alphas: The Effects of Data Snooping and Spurious Regression," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(02), pages 331-353, June.
    4. Wayne E. Ferson & Sergei Sarkissian & Timothy T. Simin, 2003. "Spurious Regressions in Financial Economics?," Journal of Finance, American Finance Association, vol. 58(4), pages 1393-1414, August.
    5. Ammer, John & Brunner, Allan D., 1997. "Are banks market timers or market makers? Explaining foreign exchange trading profits," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 7(1), pages 43-60, April.
    6. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.

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