1. Russell Investments is the source of the P/E and median market cap figures cited here.
2. See also Arnott and Hsu (2008).
3. Shleifer and Vishny (1997), 36.
4. The managers’ failure to buy losers and sell winners may be described as rational because the fear of losing clients before portfolio gains materialize is, itself, entirely reasonable. For recent evidence that mutual fund investors withdraw funds from underperforming managers, see Cashman, Deli, Nardari, and Villupuram (2012).
Arnott, Robert D., Jason C. Hsu, Jun Liu, and Harry Markowitz. 2011. “Can Noise Create the Size and Value Effects?” Working Paper, University of California at San Diego and Research Affiliates.
Arnott, Robert D., Jason Hsu, Vitali Kalesnik, and Phil Tindall. 2013. “The Surprising Alpha from Malkiel’s Monkey and Upside-Down Strategies.” Journal of Portfolio Management, vol. 39, no. 4 (Summer):91–105.
Arnott, Robert D., and Jason C. Hsu. 2008. “Noise, CAPM and the Size and Value Effects.” Journal of Investment Management, vol. 6, no. 1 (First Quarter):1–11.
Asness, Clifford S., Jacques A. Friedman, Robert J. Krail, and John M. Liew. 2000. “Style Timing: Value versus Growth.” Journal of Portfolio Management, vol. 26, no. 3 (Spring):50–60.
Berk, Jonathan B. 1997. “Does Size Really Matter?” Financial Analysts Journal, vol. 53, no. 5 (September/October):12–18.
Campbell, John Y., and Robert J. Shiller. 1988. “Stock Prices, Earnings, and Expected Dividends.” Journal of Finance, vol. 43, no. 3 (July):661–676.
Cashman, George D., Daniel N. Deli, Federico Nardari, and Sriram V. Villupuram. 2012. “Investors Do Respond to Poor Mutual Fund Performance: Evidence from Inflows and Outflows.” Financial Review, vol. 47, no. 4 (November):719–739.
Chow, Tzee-man, Jason Hsu, Vitali Kalesnik and Bryce Little. 2011. “A Survey of Alternative Equity Index Strategies.”Financial Analysts Journal, vol. 67, no. 5 (September/October):37–57.
De Bondt, Werner F. M., and Richard Thaler. 1985. “Does the Stock Market Overreact?” Journal of Finance, vol. 40, no. 3 (1985):793–805.
Fama, Eugene F., and Kenneth R. French. 1988. “Dividend Yields and Expected Stock Returns.” Journal of Financial Economics, vol. 22, no. 1 (October):3–25.
Poterba, James M., and Lawrence Summers. 1988. “Mean Reversion in Stock Prices: Evidence and Implications.”Journal of Financial Economics, vol. 22, no. 1 (October):27–59.
Shleifer, Andrei, and Robert W. Vishny. 1997. “The Limits of Arbitrage.” Journal of Finance, vol. 52, no. 1 (March):35–55.