“Although size and book to market equity seem like ad hoc variables for explaining average stock returns, we have reason to expect that they proxy for common risk factors in returns.”

— Eugene Fama

Source: Common risk factors in the returns on stocks and bonds, 1993, p. 7

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Eugene Fama 6

American economist and Nobel laureate in Economics 1939

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“If assets are priced rationally, variables that are related to average returns, such as size and book-to-market equity, must proxy for sensitivity to common (shared and thus undiversifiable) risk factors in returns. The time-series regressions give direct evidence on this issue. In particular, the slopes and R2 values show whether mimicking portfolios for risk factors related to size and [book-to-market] capture shared variation in stock and bond returns not explained by other factors.”

Eugene Fama (1939) American economist and Nobel laureate in Economics

Source: Common risk factors in the returns on stocks and bonds, 1993, p. 4-5

“Cagan’s adaptive mechanism for explaining expectations of inflation has sometimes been criticized as an ad hoc formulation that is inconsistent with the hypothesis that expectations are rational. In this paper, we have showed that conditions exist under which adaptive expectations are fully rational.”

Thomas J. Sargent (1943) American economist

"Rational expectations and the dynamics of hyperinflation." 1973

“There is no reason to think that the impact [of monetary policy] will be captured in any single [variable]…, whether it is a monetary stock or a market interest rate.”

James Tobin (1918–2002) American economist

Source: "A general equilibrium approach to monetary theory" (1969), p. 29 as cited in: Andrés, Javier, J. David López-Salido, and Edward Nelson. " Tobin's imperfect asset substitution in optimizing general equilibrium http://research.stlouisfed.org/wp/2004/2004-003.pdf." Journal of Money, Credit and Banking (2004): 665-690.

“Naturally. I like to see General Motors stock register a good price on the market, but that is just a matter of pride… What has counted with me is the true value of the property as a business return on investment.”

Alfred P. Sloan (1875–1966) American businessman

Source: Adventures of a White-Collar Man. 1941, p. 103

“In my philosophy, science is an unrelenting battle against ad hoc explanation. No other field in psychology with which I have been acquainted has been so infested by ad hoc theories as the attempts to explain social class, racial, and ethnic group differences on various tests of mental ability.”

Arthur Jensen (1923–2012) professor of educational psychology

Source: Differential Psychology: Towards Consensus (1987), pp. 430-1
Context: The key theme in Gordon’s chapter, that lends it theoretical coherence, is his clear perception that the guiding force in my own work in mental measurement arises principally from my constant search for construct validity that can embrace the widest range of phenomena in differential psychology. In my philosophy, science is an unrelenting battle against ad hoc explanation. No other field in psychology with which I have been acquainted has been so infested by ad hoc theories as the attempts to explain social class, racial, and ethnic group differences on various tests of mental ability. My pursuit of what I have called the Spearman hypothesis (Jensen, 1985a), which is nicely explicated by Gordon, represents an effort to displace various ad hoc views of the black-white differences on psychometric tests by pointing out the relationship of the differences to the g loadings of tests, thereby bringing the black-white difference into the whole nomothetic network of the g construct. It is within this framework, I believe, that the black-white difference in psychometric tests and all their correlates, will ultimately have to be understood. Understanding the black-white difference is part and parcel of understanding the nature of g itself. My thoughts about researching the nature of g have been expounded in a recent book chapter (Jensen, 1986b). Enough said. Gordon’s chapter speaks for itself, and, with his three commentaries on the chapters by Osterlind, Shepard, and Scheuneman, leaves little else for me to add to this topic.

“The cheaper the stock, the better the outlook for future returns.”

Robert Haugen (1942–2013) American economist

Source: The Inefficient Stock Market - What Pays Off And Why (1999), Chapter 4, Payoffs to the Five families, p. 50

“There is no general reason to expect evolution to be progressive – even in the weak, value-neutral sense. There will be times when increased size of some organ is favoured and other times when decreased size is favoured. Most of the time, average-sized individuals will be favoured in the population and both extremes will be penalised. During these times the population exhibits evolutionary stasis (i. e., no change) with respect to the factor being measured. If we had a complete fossil record and looked for trends in some particular dimension, such as leg length, we would expect to see periods of no change alternating with fitful continuations or reversals in direction – like a weathervane in changeable, gusty weather.”

Richard Dawkins (1941) English ethologist, evolutionary biologist and author

The Evolutionary Future of Man (1993)

“We shall approach practical objectives through a series of approximations. Keeping the maximization of the rate of return as the central theoretical objective, we shall develop a number of subsidiary objectives (which the economists call proxy variables) which contribute in different ways to improvement in the return and which are also measurable in business practice. A firm which meets high performance in most of its subsidiary objectives will substantially enhance its long-term rate of return. (The defect in our approach is that we cannot prove that the result will be a ‘‘maximum’’ possible overall return.) As will be seen, this road has its own obstacles: the difficulties of long term maximization are replaced by the problem of reconciling claims of conflicting objectives.”

Igor Ansoff (1918–2001) American mathematician

Source: Corporate Strategy, 1965, p. 47; cited in: Graham Kenny, (2012),"From the stakeholder viewpoint: designing measurable objectives", Journal of Business Strategy, Vol. 33 Iss: 6 pp. 40-46

“Whenever we give up, leave behind, and forget too much, there is always the danger that the things we have neglected will return with added force”

C.G. Jung (1875–1961) Swiss psychiatrist and psychotherapist who founded analytical psychology

“Value stock returns are impossible to estimate using the traditional methods, because most of the excessive return arises from the slow improvement in valuations that occurs as doggy stocks become less doggy over time.”

William J. Bernstein (1948) economist

Source: The Four Pillars of Investing (2002), Chapter 2, Measuring The Beast, p. 68.

“Although size and book to market equity seem like ad hoc variables for explaining average stock returns, we have reason to expect that they proxy for common risk factors in returns.”

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Eugene Fama 6

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