The Myth of the Most Efficient Market

O’Shaughnessy Asset Management

Patrick O’Shaughnessy

Research

6 Pages

O’Shaughnessy Asset Management challenges the belief that U.S. large cap stocks are too efficient to outperform consistently. It argues disciplined factor investing can uncover overlooked opportunities, while rising passive ownership and changing shareholder payout trends may actually create greater market inefficiencies over time.

Key Takeaways

Passive Growth Paradox: Passive equity mutual fund assets grew from 8.7% in 1998 to 17.4% in 2012, suggesting increased indexing may leave more pricing opportunities for disciplined investors.
Factor Results Matter: The Market Leaders Value strategy outperformed the Russell 1000 Value by 5.5% annualized since 2001 and generated excess returns in 96% of rolling 3 year periods.
Shareholder Yield Advantage: High shareholder yield stocks traded at a 20% discount while high dividend yield stocks traded at an 11% premium, reflecting changing market preferences toward buybacks.
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