Wall Street Journal dart contests tested whether experts beat random stock selection

Evidence

Financial economists would not have accepted that the dartboard analogy was entirely fair -a portfolio selected by dart-throwing might, for example, not be diversified well enough to be optimal or near-optimal but it was a simple, memorable image that endured and seems to have captured for many investment managers what they objected to in efficient-market theory. In 1988, the Wall Street journal began regular contests in which the performance of a small number of stocks selected by investment managers was compared to a similar number of stocks selected by throwing darts. The managers indeed tended to outperform the darts, although the consistency with which they did so was less than fully reassuring. Managers’ choices outperformed those of the darts in 83 of the 135 contests from 1990 to 2001, but the darts did better than the apparent experts 52 times (Jasen 2001). — Donald MacKenzie, An Engine, Not a Camera, 353

Categorization

• XREF: Empirical anchor: experts won only 61 percent of dart contests, consistent with weak rather than strong market efficiency. — connects to: Independent researchers independently rediscovered random-walk stock price models — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 290; Efficient-markets and random-walk theory legitimized options against their scandalous reputation. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 62
• QUESTION: What explains the experts’ modest edge? Selection of contest darts (limited universe) vs. experts’ ability? Could chase this literature.

Broader Connections

• Independent researchers independently rediscovered random-walk stock price models #expands (0.85) — Donald MacKenzie, An Engine, Not a Camera, 290
• Efficient-markets and random-walk theory legitimized options against their scandalous reputation. #responds-to (0.75) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 62