Mr.Market’sBipolarDisorder 11BE AN ANOMALY
EMT also cannot explain many other things about how market prices
operate apart from swings, bubbles, and crashes. Abundant evidence
refuting EMT includes the extraordinary number of unexplained
market phenomena, such as the following:
- The January effect (prices tend to rise in January).
- The insider effect (a stock’s price tends to rise after insiders dis-
close purchases to the Securities and Exchange Commission and
fall after insider sales are disclosed). - The value line effect (stocks rated highly by the Value Line In-
vestment Survey tend to outperform the market in terms of price). - The analyst effect (stocks of companies followed by fewer analysts
tend to become pricier compared to those followed by more ana-
lysts). - The month effect (stoc kprices tend to rise at the end and the
beginning of months). - The weekend effect (stock prices tend to be lower on Mondays
and higher on Fridays).
Weirder correlations also exist, including the hemline indicator
(prices historically have risen and fallen in tandem with rises and
falls in the average length of skirts in fashion) and the Super Bowl
effect (prices tend to rise in the period after the Super Bowl if the
winning team was a member of the original National Football
League but fall otherwise).
Efficiency buffs call these and dozens of other well-known
exhibits against market efficiency “anomalies.” Some anomalies dis-
appear over time. The January effect began to do so in the mid-
1980s. When they do, EMT worshipers rejoice, citing the disappear-
ance as evidence of market efficiency. This is strange evidence,
however, when you note that the vanished anomalies persisted for
decades (seven decades in the case of the January effect).
Even more bizarre, the anomaly label has been applied to the
astonishing investing records of many prominent stoc kpic kers, a list
that is long and getting longer. It includes Ben Graham; Warren
Buffett; Charlie Munger, vice chairman of Berkshire Hathaway; John
Maynard Keynes; Bernard Baruch; Gerald Loeb; John Neff of the