1. Limits to Arbitrage: Short selling is highly risky.
2. Earnings Surprise: In reality, it has been shown by Kolasinski and Li (2005) by ranking US companies by the extent of their earnings surprise that prices adjust slowly to the earnings announcements. While market efficiency implies that prices will adjust immediately to the announcement.
3. Size: In practice, it has been shown that the average return on small stocks is quite a bit higher than the average return on large equities. Although much of the differential performance is merely compensation for the extra risk of small firms, researchers have generally argued that not all of it can be explained by risk differences.
4. Value vs. Growth: A number of papers have argued that equities with high book-value-to-share-price ratios and/or high earnings-to-price ratios (generally called value stocks) outperform equities with low ratios (growth stocks). In every country, with the exception of Germany and Switzerland, value stocks outperformed growth stocks.
5. Crashes and Bubbles: Bubbles can result when prices rise rapidly, and more and more investors join the game on the assumption that prices will continue to rise. These bubbles can be self-sustaining for a while, but eventually prices fall back to their original level, causing great losses for investors.