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ROBERT VISHNY

Professor of Finance, Univ. of Chicago Business School

Academics have long argued that the market is too efficient for anyone to consistently beat, say, the Standard & Poor's 500-stock index. Indeed, index-fund investing stems from this ''efficient market'' hypothesis (EMH), and the University of Chicago Graduate School of Business is the theological center of this belief. That makes Robert Vishny, 38, a finance professor there, a heretic. He believes you can beat the market, and he's even a partner in an investment firm that has been doing it.

Vishny says that much of the movement in stock prices can better be explained by behavioral psychology than by EMH. For instance, he says there's a human tendency to believe that a pattern once identified, such as a company's years of ever-increasing profits, will go on indefinitely. ''There's a human desire to hold on to already established opinions,'' he says. The result: Risk and value are often misjudged by the crowd, and smart investors can exploit that tendency.

The investment firm, LSV Asset Management, founded by Vishny and two collaborators, Josef Lakonishok of the University of Illinois and Andrei Shleifer of Harvard University, puts his ideas into practice. Since its 1994 launch, LSV has outperformed the S&P 500 by 3.4 percentage points annually. Vishny is the first to note that LSV's track record is too short to be able to determine whether he and his partners are smart or just lucky.

Vishny says he eventually will take his investment theories abroad as well. Investors, he says, ''would be inclined to act the same way in all countries.''

By De'Ann Weimer in Chicago


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