This action might not be possible to undo. Are you sure you want to continue?
Hersh SheErin and Meir Statman
HERSH SHEFRIN and MEIR
ST A TMAN are professors of finance at the Leavey School of Business of Santa Clara University
in Santa Clara (CA 95053).
26 MAKING SENSE BETh. SIZE.AND BOOK-TO-MARKET OF
ize and book-to-market ratios have emergedas the two prominent variablesthat aresignificantly related to stock returns. Fama and French  find that stock returns are negatively relatedto sizeand positively relatedto book-to-market ratios. They also find that the relationship between stock returns and betais not statistically significant. The Famaand French research capsearlierstudies that revealstrongrelationshipsamong stock returns, size, and book-to-market ratios (Banz , Reinganum , Stattman, and Rosenberg,Reid, and Lanstein). It also follows earlier studiesthat reveal weakrelationship a betweenstockreturnsand beta (Levy  and Lakonishokand Shapiro). Famaand Frenchdivide the set of theories into two contextswithin which the empirical resultscan be viewed, one relatedto rational valuation and the other relatedto overreaction.The essence the rational valof uation theory is that size and book-to-market areindicatorsof risk through their relationship with the economic prospects com~es. The essence overreacof of tion, asdescribed De Bondt and Thaler , is that by investors overreactto recent stock returns,thereby causing the stocksof "losers" to become undervaluedand the stocksof "winners" to become overvalued.Fama and Frenchlean toward the rational valuationtheory; Famaand French'sanalysishasbeen challenged on several grounds. Chan and Lakonishok  emphasizethat the relationship between returns and beta must be interpreted with caution because realized
ket portfolio.'eakif the benchmark portfolio is not efficient portfolio. information tradershold mean-variance efficient portfolios. Later. was Merck. develop. The worst was Wang Laboratories. make systeImtic errors as they assess relationship the betweencharacteristics companies of and the return distributions of their stocks. we show and the rational valuation approaches discussedby Fama that these investorsrank stocks asif they are indifferent to and French. and ability to attract.Bernstein  observedthat tendency nearly forty years ago. while noise tradershold portfolios that deviatefrom mean-variance efficiency:) A central element in the behavioral capitalasset pricing theory is a cognitive error that leads noise tradersto the belief that good stocksare stocksof good companies. with an average score of 8. Statman . Moreover. which differs from both the overreaction stocks are stocks of good companies. More than 8. Asset prices in the behavioralcapitalasset pricing theory are the outcome of an interaCtionbetweentwo kinds of traders. Information tradersknow the relationshipbetween characteristicsof companiesand the return distributions of the stocksof thesecompanies. innovativeness. The attributes are: quality of management. ability to attract. and book-to-market ratios might be due to no are perceived asgood companies are large. Black  and Roll and Ross there is a strong relationship between stock returns and  say that the relationship between returns and beta when beta is measured relative to a mean-variance beta might be \1.(In a world of quadraticutility funcrions. Merck ranked first on financial soundness.99. Sherrin and Statman . The best company. quality of products or services. The survey published in February 1993 was conducted in the autumn of 1992.however. quality of products or services.but for now we note that the observationthat investorstend to identify good stocks as stocks of good companiesis longstanding. when betais estimated relative to a proxy of the marthat investors form expectations about stock returns. financial soundness. develop. but they do not identify mean-varianceefficient portfolios. Clayman. long-term investment value. So what are the objective characteristics that correspond to the Fortune ratings?We find that good companies are companies that are large and have low book-to-market ratios. t While Fortune ranks the quality of a company by its averagescore on the eight attributes. using a scale of zero (poor) to ten (excellent).we postulate that WINTER 1995 EXPECTATIONS ABOUT STOCK RETURNS Fortune magazine has been publishing the results of an annual survey of company reputations since 1983.Noise traders. we discussthe link between expectaand we relate this evidence to the findings on realized tions about stock returns and expected stock returns. The ratings of the quality of companies by the Fortune respondents are subjective. book-to-market ratios. outside directors. 82% of the survey respondents consider quality of management the most important attribute of the quality of a company. responsibility to the community and the environment. discuss We this error in detai1later. with an average score of 1. and wise use of corporate assets. and keep talented people. we offer empirical evidence about the way beta.enced investors rank stocks as if they believe that good rity valuation. and have low more than clan mining. we characterizethe conditions under which mean-varianceefficient portfolios are tilted away from stocks of good companies and toward stocks of bad companies. according to the 1993 survey. We bwld on the behavioral capitalasset pricing theory that we have presentedin SheErin and Statman . good companies from bad? We show that companies that size. Black goes further. In regreslliEjOURNAL OF PORTFOUO MANAGEMENT27 .000 senior executives.returns are noisy. We also show that even experiWe propose a behavior-based approach to secu. Consistentwith Roll and Ross's general statement.74 on the eight attributes. It ranked second on quality of management and innovativeness. In Shefrin and Statman . and cauBut what are the characteristics that distinguish tions that the strong relationships among stock returns. It includes 311 companies in 32 industries. More recent work includes Arnott . and Solt and Statman. But returns. and keep talented people. we begin with expectations about stock returns. They raisethe possibility that the proxiesused for the market portfolio are not mean-varianceefficient.information tradersand noise traders. with most questionnaires completed by the end of September. Roll and Ross reiterate that there is an exactlinear relationship between expected returns and betas measured relativeto a mean-varianceefficientportfolio. mean-"\"arianceefficient. and financial analysts were asked to rate the ten largest companies in their own industry on eight attributes of reputation.
Consider the three equations.02) N = 270 Adjusted R 2 = 0.60) N = 257 Adjusted R2 = 0. N = 257 The conclusion becomes even more evident AdjustedR 2 = 0. Sevenof the eight attributes in the Fortune survey relate to companies.64 Value asa Long-Term Investment= (13.65) N = 270 Adjusted R 2 = 0.51) + 0.relatesto expectationsabout returns on the companies' stocks.AND BOOK-TO-MARKET OF Value asa Long-Term Investment = 5. value as a long-term investment.95) N = 311 Quality of Management= 6.57 (Log of Book-to-Market) 2.46) Adjusted R 2 = 0.Consider the relationship between the Fortune survey scores on quality of management and value as a long-term investment.75 (Log of Book.to-Market) Adjusted R 2 = 0. largeand are have low book-to-market ratios.to-Market) (-9.26 when we explore the direct relationship between the Fortune ratingsof stocksby value asa long-term investQuality of Management= ment and sizeand book-to-market ratios. companies with high scores the quality of management on scale.47) -0.02) 0.88 (-10.16 (79. We obtain similar resultsfor eachof the ten earlier Fortune surveys.79 + 0.86 The slope coefficient is positive and highly statistically significant.89) N = 257 (Log of Book.72) + 0.23 (-5.86. SIZE.we find the following relationships? Quality of Management= 3.sionsof qualityof management against and book-tosize marketratios.71 (11.13) + 1.31 The Fortunesurvey respondents imply through their ratingsthat good companies.07 (6.31 WINTER 1995 .36 (Log of Size) (9.We obtain similar resultsfor eachof the ten earlier Fortunesurveys.21 (Log of Size) (4.32) of the quality of their stocks? . 4. The relationship is reflected in the equation: Value asa Long-Term Investment = -0.03 (Quality of Management) (43.3What is the relationshipbetWeen perceptionsof the quality of companies perceptions and 28 MAKING SENSE BETA. Typical Fortunerespondents chooseas if they believe strongly that good stocksare stocksof good companies.49 (Log of Size) (12.50 (69.60) 0.The R 2 is 0.37 (-6. One.
even We obtain similar results for each of the ten earlier when controlling for size and book-to-market ratios.70 + 0.06 (Beta) Note that the coefficient of size remainspositive. Beta is proportional to the + 0. Another role ratios are likely to outperform.to-Market) (-2.98) 0.t high value as a long-term invest.79) N = 265 Adjusted R 2 = 0. Of course.63) rity and a mean-variance efficient portfolio.60) Value as a Long-Term Investment= -0.32 (Log of Size) product of the standard deviation of the returns of a security and the correlation between the returns of the secu(7. Fortune surveys. a proxy for the market portfolio. beta. of course.85 (Quality of Management) (31.02 (StandardDeviation) (-3. WlI-n"ER.84 (78.86 Quality of Management= 6.5 where quality of management joins size and book-toConsider the relationships among quality of market as an independent variable. rank stocks as if they believe that stocks of compaThe standard deviation has more than one role.survey data and the corresponding measuresof beta and ment stocks are stocks of large companies with low standard deviation.Value asa Long-Term Investment= 3. is as a proxy for beta.48) + 0.93) (-4. is as an objective characteristic that distinguishes good stocks of companies that are small and have high companies from bad. Beta is measured relative to the S&P book-to-market is strikingly evident in a regression 500 Index. a subjective measure of company quality. In particular.10 THE ROLES OF BETA AND THE STANDARD DEVIATION The standard deviation of the returns of a security is one element of beta.the stan(-7. 1995 (-0.05 Quality of Management= 6. over the long term. A poor proxy 0. In this case.11 (Log of Book.53) 0. we find that stocks of good companies have statistically significant lower book-to-market ratios. Levy  finds that the correlation between standard deviation and returns is higher The results imply that typical Fortune respondents than the correlation between beta and returns.59 (Log of Book-to-Market) for a mean-variance efficient portfolio can add considerable noise to the estimate of beta. We analyze the relationship between the 1993 Fortune The belief tha. and standard deviation. and that both coefficientsare statisticallysignificant.00 THE jOURNAL OF PORTFOLIOMANAGEMENT 29 . management.32) N = 265 Adjusted R 2 = 0. and book-to-market: (9.4 standard deviations than stocks of bad companies. size.63) N = 257 Adjusted R 2 = 0. this is the opposite of what empirical evidence on returns shows.18) dard deviation of a stock's returns might feature a better N = 257Adjusted correlation with beta than an estimate of beta derived R 2 = 0.44 from a poor proxy: Indeed. the coefficient of book-to-market remains negative.89 (27.69) 0.15 (Log of Size) (7. nies that are large and have low book-to-market One role.
58) + 0.00 (7.77) 0.16 (9.45 Value asa Long-Term Investment = 3. In contrast.59 (Log of Book-to-Market) (-7.55) N = 252 Adjusted R 2 = 0. beta.95) 0.60 (Log of Book-to-Market) (-7.SIZE.14) + 0.29 (Log of Size) (6.18 (Log of Size) (3.01 (StandardDeviation) (-2.07 Valueasa Long-Term Investment= 6.43 WINTER 1995 .54) + 0.02 (StandardDeviation) + 0.33 (69.02 (StandardDeviation) (-4.31 Note that a high standard deviation is an objective characteristic of a bad company.43) 0.58 (Log of Book-to-Market) (-6.Quality of Management = 4.86) 0.65) 0.84) 30 MAKING SENSE BETA.35 (Beta) (1. Consider further the relationships among the Fortuneratings of stocksby value asa long-term investment and standard deviation.31) 0.31 N = 265 Adjusted R 2 = 0.58 (Log of Book-to-Market) Adjusted R 2 = 0.87) N = 252 Adjusted R 2 = 0.01) (-6.85) N = 265 + 0. (-3.56) N = 252 Adjusted R 2 = 0.84) 0.10 (Beta) (0. the relationship between quality of management and beta is not statistically significant. The correlation between quality of management and standard deviation is negative and statistically significant even when size and book-to-market are added into the equation.32 (Log of Size) (7.05) Value asa Long-Term Investment= 6.02) 0.48) Value asa Long-Term Investment= 3.99 (14.44 (Beta) (-2.21 (Log of Size) (4.01 Quality of Management = 4.53 (25.52 (10.70) N = 252 Adjusted R 2 = 0. size. AND BOOKOF TO-MARKET + 0.and book-to-market.
in This. that good stocks are A BEHAVIORAL FRAMEWORK FOR stocks of good companies. longer statistically significant when size and book-tomarket are added into the equation. their portfolios become less diversified as they take on more unsystematic risk. information about the expected return of a particular stock. To see the implications of imperfect arbitrage.There is a negative and statistically significant relationship between standard deviation and value as a long-term investment. we should note that no perfect (risk-free) arbitrage is possible here. We argue similarly that representativeness investorsto idenleads tify good stocksas stocksof good companies. THEJOURNALOF PORTFOUO MANAGEMENT 31 . He showsno interestin political and social issues and spendsmost of his free time on his many hobbies. Would information traders not nullify any effect stocksare stocksof good companies? argue that the of noise traders on security prices through arbitrage? We belief is rooted in representativeness. the Fortune FROM EXPECTATIONS ABOUT respondents rank stocks as if they care about size. Thus. risk-adjusted expected returns to stocks of good companies will be no different from risk-adjusted expected returns to stocks of bad companies! If arbitrage is incomplete. but not perfect. risk-adjusted expected returns to stocks of bad companies will exceed riskadjusted expected returns to stocks of good companies. and ambitious.ignoring statistically significant when size and book-to-market are the evidence that the proportion of stocks of good added into the equation. bookSTOCK RETURNS TO EXPECTED to-market.6 The relationship between standard deviation and value as a long-term investment remains negative and from the indicated probability that Jack is an engineer given that thereare seventy engineers the population.ignoring the of proportion of engineersin the population. which include home carpentry. and with it. Suppose that most investors are indeed noise traders who believe. that is.atisticallysignificant relationship between beta and value asa long-term investment.and mad1ematical puzzles. consideran experiment by Kahnemanand Tversky . were asked to indicate the probability that Jack is an engIneer: Jack is a 45-year-old man. did not differ significantly WINTER 1995 nullified. He is married and has four children.The other group is told that dIe population includesseventyengineersand thirty lawyers. One group of subjects told that dIe population is includes thirty engineers and seventy lawyers. As we consider arbitrage and the likelihood that it would nullify the effects of the preferences of noise traders on security prices.is inconsistentwith Bayes'rules. Kahnemanand Tversky found that the indicated probability that Jack is an engineeris not affectedby the "baserate. Subjectsgiven a description of "Jack. Imagine that information traders know that good stocks are generally stocks of bad comWhy do typical investors believe that good panies. this relationship is weaker than the relationship between standard deviation and value as a long term investment. But they are indifferent to beta. however. Kahnemanand Tverskyargue that people reachedtheir conclusionsby consideringthe degreeto which Jack is similar to or representative an engineer." drawn at random from a population of lawyers and engineers.given that dIere are only thirty engineersin dIe population. the relationship companiesthat do well is smallerthan the proportion between beta and value as a long-term investment is no of stocksof bad companiesthat do well.' dIe proportion of engineersin dIe population. careful. While there is also a negative and S'". sailing.common cognia If the effects of noise traders on stock prices are tive error described by Kahneman and Tversky. However. erroneously. and standard deviation as they assess stock's STOCK RETURNS a value as a long-term investment. imagine information traders who receive reliable. To understandthe nature of representativeness. It is optimal for information traders to increase their holdings of the particular stock. The increase in risk leads information traders to limit the amount allocated to the stock. but as the amount devoted to the stock increases. of course. But surely not all investors EXPECTATIONS ABOUT STOCK RETURNS are noise traders. limit their effect on its price. the indicated probability that Jackis an engineer. He is generallyconservative. Imagine also that the nature of the information is such that the expected return of the stock as assessedby information traders is higher than the expected return as reflected in the current price of the stock.
one of my mated relative to a portfolio tilted optimally toward essentialrequirementsis that the stock be rated stocks of bad companies have a strong relationship with A-. God. without the help of money managers. limb. The regret potential of a choice of a stock is a function of two elements. and arbitrage by infordo this. Kahneman the broker. Their willingness to over stocks of bad companies. and they may seekredressthrough and Tversky  describe "regret" as the pain that court action (pp. information traders might have a greater effect on stock prices by becoming brokers or money would be with similarlossesin low-rated issues. ex post.money managers that they can take regret. As money managers. or A+ by Standard& Poor's. managers for noise traders. bearing whatsoeveron the direction the price there might be many information traders with much may take in the furore wealth. The choice of a stock tions. Money man. we hypothesize that variables that distinguish good companies from bad are also associatedwith When selectinga stock to attempt to merchanreturn anomalies. is limited by the likely response of their noise trader clients. now that clients specifically instruct money managers to Loss by a noise trader who chooses the stock of a good buy stocks of bad or "value" companies.with known cross-sectional return anomalies are also characteristics that distinguish good companies from ual for stockbrokers: bad. aversion to without regard to the overall portfolio. We agers might use their control over client funds to tilt the believe that the same holds for investors who tell portfolios of noise traders toward stocks of bad compa. Investorswho lose on lowquality issues tend to direct their anger toward management as a mechanism for arbitrage. The evidence is not encouraging. While choos. This argument has three implications. ings are basedon an assessment a company's of 32 MAKING SENSE BETA. A. Second. Noise traders prefer stocks of good companies nies. however. on their own. however. involves "going out on a a good defense against accusations of imprudence. We contend. That changed in regret reinforces the cognitive error that leads noise 1979. Third. we hypothesize that variables associated stocks of bad companies. the quality of the Peter Bernstein has pointed out to us that the company and the share of responsibility for the choice.Arbitrage can nullify the effect of the preferences financial strength. however. they Investors who lose money on high-quality issues can leverage their effect on stock prices by investing frequently direct their anger more toward the funds provided by noise traders. we hypothesize that betas estidise in a big way to many people. First. Stocks of good companies have traditionally been of a bad company. Yet information traders chandiserof quality stock shares When high seem to be in a minority.AND BOOK-TO-MARKET OF WINTER 1995 . Now consider money managers. market than toward the broker who recomthat aversion to regret limits the effectiveness of money mended the stock. Clients are more forgiving of mation traders is unlikely to nullify the effects of noise losses on stocks of good companies than of losses on traders on stock prices. effectiveness of the choice of stocks of good companies Consider first noise traders who choose stocks as a defense against poor performance might diminish. than they Second. First. It seems that cognitive errors are persistent. that a choice has turned out badly." so the regret potential is high. ing the stocks of good companies is a way to reduce regret potential. by the way. thereby facilitating arbitrage. The quality rating has no of noise traders on stock returns in two ways.risk often change their mind when losses occur. Theseratstock returns. Since 1979. their holders are less likely to litigate.tinue to assess risk stock-by-stock.SIZE. and the combined effect of their trades might be sufficient to nullify the effect of the preferences o~ You will be ableto sleepbetter at night asa mernoise traders on security prices. and the Consider the application of prudent man regulachoice has little regret potential. prudent man regulations specify that within the context of the portfolio." The noise trader feels little responsibility. Time will tell company over the stock of a bad company is an "Act of if he is right.Investors who tell money managers that they can take sibility for choice to a money manager. an alternative is to transfer the respon. Consider the advice of Gross  in his man. Yet traders to prefer stocks of good companies over stocks risk be assessed Del Guercio  reports that judges and juries conof bad companies. comes with the realization. 174-176). quality investments lose value. Thus.
. (The publishec articles provide only [he average of the eight scores for each company.The sample size for most of the regressionsis smaller than the full sample because of missing data. survey respondents rank stocks as if they believe that good stocks are stocks of good companies. We hypothesize that companies with low Tobin's q are bad companies. low book-tomarket companies outperformed stocks of small.. include a number of years when stocks of large. the 1980s. We know that stocks of good companies underperfonn stocks of bad companies over long periods. This survey ranked Philip Morris first by this measure. But there are short periods when stocks of good companies outperfonn stocks of bad companies. we do not have sufficient evidence for a definite conclusion.42. Indeed. Inc. Winter 1983. rypical Fortune respondents are like Peter Lynch (formerly of Magellan) who achieved outstanding returns even though Magellan's portfolio was composed largely of stocks of low book-tomarket companies (see Sharpe ). 42).. rypical Fortune respondents might be information traderswho know how to selectwinning stocks from the population of good companies. The book-to-market ratio of a company is measured as the log of the ratio of book value of equity as of the end of 1991 to the market value of equity asof the end of September 1992. 5Dataon betaand standard deviation are from MeTTi1I Lynch Pierce F~nner & Smith. CONCLUSION We analyze the Fortune magazine surveys of company reputations and find that survey respondents rank stocks as if they believe that good companies are large companies with low book-to-market ratios. Peter Bernstein. "neglected" companies. Carvell. and Strebel [1983J report that stocks -of neglected companies provide higher risk-adjusted returns than stocks of followed companies.50 per share.. IThe Fortune scores for each of the eight attributes were obtained from Fartut/(.) Data on size and book-to-market ratios are from Compustat. and stock market value.to a recent $41. pp. Avner. 37-42. We hypothesize that the other three variables are also associated with return anomalies. the author of the survey.h~1 Av':. year afteryear after year Wall Street expressed approval.~11 _. SarahSmith [1990J."". De Bondt and Thaler  report higher riskadjusted returns to "losers" then to "winners. We hypothesize that neglected companies are bad companies. for example. Robert WINTER 1995 57-63. and Atulya Sarin for comments.n~ . 3An indication of what value asa long-term investment means can be gleanedfrom the 1990 survey.." We hypothesize that "losers" are stocks of bad companies. 'We use the term "risk-adjusted" to denote risk adjustment that employs a proxy of the market portfolio for a mean-variance efficient portfolio.. THEJOURNAt OF PORTFOUO MANAGEMENT 33 . REFERENCES A. May-June 1983.when most of the Fortunesurveys were conducted. Moreover. ENDNOTES The authors thank Lena Lim for researchassistance. 4Noise traders believe that good stocks are stocks of good companies. Size of a company for the 1993 Fortune survey is me2Sured the log of market value of equity as of the end of as September 1992. underlie both the superior performance of stocks of small companies with high book-to-market ratios and the weak relationship between realized returns and beta.~ t>~. We will know more when we conclude an investigation of the perfonnance of portfolios constructed by the rankin~ of the Fortunerespondents..with a scoreof9. and Paul Strebel." FiMnaal Analyst. Size is measured by stock market value.'s "Security Risk Evaluation Market Sensitivity Report" of September 1992. Jay Ritter. While the evidence indicates that typical Fortune respondents are probabIy noise traders. With that kicker. pp. Ed Chow. and the indifference to beta. Arbel and Strebel  and Arbel. Rosemary Macedo. The preference of the Fortune respondents for stocks of large companies with low book-to-market ratios contrasts sharply with the empirical evidence that indicates that good stocks are stocks of smaIl companies with high book-to-market ratios.. consider objective characteristics that distinguish good companies from bad companies. Reese  reports in Fortune that reputation scores are closely related to ten-year annual return to shareholders. and the Dean Witter Foundation for financial support. r_'h_'h~~' "~"'U"V'" and Neglected Finns.Consider. We find a relationship that is not statistically significant for Fortunesurveys of other years.by bidding up the price of its its stock 63% during the year. 2T-statistics are in parentheses. ~e relationship betWeen beta and value as a long-term investment aswell asthe relationship between beta and quality of management is not robust.!Journal.total profits.". and we already know that it is associated with a return anomaly. ~~. profits asa percent of assets. companies with low ratings on the scale of quality of management. We also find that the Fortune respondents rank stocks as if they are indifferent to beta. We cannot dismiss the possibility that typical Fortune respondents are information traders who know when to switch from stocks of good companies to stocks of bad companies."".a. Solt and Statman  report that stocks of companies with low Tobin's q provide higher riskadjusted returns than stocks of companies with high Tobin's q. David Ikenberry. .1~_~_1 "~:_a-. We argue that the belief that good stocks are stocks of good companies. notes that "Philip Morris succeededlargely by giving shareholders exactly what they want: an outstanding rerum.. '-3""'~. Amott. ~t~v~n r. high book-to-market companies. -". Moreover. the company's ten-year total return to investorsaveragedjust over 300/0 a year -tops among the 305 companies in our survey" (p. Now. If so. Log transfonnations of size and book-to-market are used to facilitate comparison with Farnaand French's analysis. Arbel... "Pay Attention to Neglected Firms!" Journal ofPortfolioManag=ent.
»Psychological Review. pp. 9-17. Robert D. 1982. May-June1987. "Does The Stock PierceFenner&. and Amos Tversky. Solt. "America's Most Admired Corpontions.Amott. New York: New York Institute of Shemn."Harvard Empirical AnomaliesBasedon ~ vs."The Psychology of Preferences. on Institutional Equity Invesanents. 643-658." Psychology Today. of Gross. Bad Stocks. American EcollOlllic Review. Werner F. pp. 7-19.University of 1992. 25-45. William J. Dennis.January Finance. "Growdl Companies GrowthStocks. Eugene F.C." Working paper. pp. No. pp."Joumidof Fir. Barr.M. 323-349. March 1981. Summer 1989." MBA: A Journal of Selttted Papers. and Stephen A. 44-80.pp.. 54-63. Inc. "What Hath MPT Wrought: Which RisksReap Rewards?" Joum4l ofPortfolio Management. and Alan C. "Behavioral Capital Asset Pricing Theory. Richard. ." Fortune. and Rich2rd H. pp." September 1978.246 (1982). 167-173. Kenneth Reid. 557-581." ScientifIC American.2 (February 1986). Rosenberg. Marc R. 1985. 1983. LouisK. 1993. Reinganum. Total Risk and Size as Detennin2nts of Stock Market Returns. (1980). Haim. pp. K2hne=.1983." Business Review. Daniel. Rolf W.pp. pp.Peter L. 19. (1985). 47 (1992). 101-121. pp." pp. Santa Clara University. "Misspecification of Capital Asset Pricing: Bernstein.. 29 (September 1994). 1990. "On The Psychologyof Prediction.. Roll. pp.. Fall 1993. Josef. J. "The Relationship Bet\vcen Return and Market Value of Common Stocks. Meir. 1M Art ofSellingIntangibles: How ta Make Your MiUion(S) by InvestingOther People'sMoney. 115-132. Michelle.Diane. Sharpe. Fall Banz. md Meir St2trnan. 237-251. pp. Michael E." Journal ofPortfolioManagemmt. Smidt. -. 427-465.. French. "America's Most Admired Companjes.and J~Ukonishok. 4 The Chicago Levy. p." Journal ofPorifolio Manag~t..Aversion Responsibility: to Explaining the SizeEffect and Other Return Regularities. -.November 1994." Journal ofPortfolio Management. and Ronald Lanstein. LeRoy. 20." FortUMMagaziM. "Equilibrium in an Imperfect M2rket: A Constraint the on 34 MAKING SENSE BET SIZE.Spring Clayman. JoumaI ofFinandalEconomia." Journal ofFinancial and Quantitative Analysis.. Shapiro. Market Overreact?" Journalof Finance. and Meir Suanan. (1981). "The Cross-Section of Expected Stock Returns:' JoUm421 Finanle. Winter Del Guercio. pp.Vol. Reese. 9 Number of Securities in me Portfolio. Sarah. 49 (M2rch 1994). "Persuasive Evidence of MaIket Inefficiency. Oregon. "SecurityRisk EvaluationMarket SensitivityReport. (1973). Clan. 8-18. Fanta. Black. "In Search of Excellence: The Investor's Viewpoint. 42. "Systematic Risk.pp. "Beta and RetUrns. 40 pp.. "Book Values and Stock Returns. pp. September1956.."Working paper. Ross.AreThe Repons Beta's of Deadl Premature?" ]oumal Por!folio of ~ Swnmer1993. pp. 80 pp. SUttman. "Good Companies." Journalof Banking and Finance.AND BOOKOF TO-MARKET WINTER 1995 . and Kenneth R. "On The Cross-Sectional RelationBetWeen ExpectedReturnsand BebS. Fischer.10 (1986)."How Not to Make Money in the Stock Market. "The Distorting Effect of the PrudentMm Law PertonnanceMeasurement. Hersh. "Asset Allocation: Management Style and Journal of Portfolio Management. 51-62." Journal ofFiMndal Eroonomics. September 1992. 39-44. Yields and Market Values.3-18.ance. 19-46. February8.FinancialAMlysts Journal. Smith. 87-98." Merrill Lynch De Bondt. Thaler. Lakonishok. Stannan. .