In this chapter, Malkiel responds to the claims that the market offers various opportunities for returns above the average. The following observations are discussed:
1) Several studies demonstrate that stock prices do exhibit momentum. For example, a stock price rise in one week signals a greater than normal chance of a stock price rise in the following week.
2) Stocks that have performed poorly for several years tend to outperform the market as well.
3) Stocks exhibit seasonal moodiness: prices tend to rise in January, and at the end of the week.
4) Smaller stocks tend to outperform the market
5) Stocks with low P/E, low P/B, and higher dividend yields outperform
While Malkiel recognizes that behavioural finance elements do play a part in market forces, the anomalies listed above don't cause him to waver in his belief of an efficient market. In each of the above cases, he lists reasons for why these anomalies can exist in an efficient market. Some of the reasons are as follows: some of the outperforming stocks are more risky, some of these anomalies no longer occur as they have been exploited, and some of the out-performance is so small that there is no excess profit after trading costs.
Malkiel ends the chapter with data showing that the performance of the average mutual fund manager does not outperform the market after fees. He uses this as evidence to demonstrate that even though the anomalies may exist in theory, after taking into account transaction costs the anomalies cannot be exploited in practice.