STREET DOGS: Market anomalies
The supposed market anomalies academics have identified don’t exist
Academics Lu Zhang, Kewei Hou and Chen Xue published a paper in 2017 that challenges much of the research on market "anomalies". Titled Replicating Anomalies, it is the result of nearly three years spent compiling and replicating 447 market anomalies identified in academic literature. The takeaway: most of the supposed market anomalies academics have identified don’t exist or are too small to matter. In short, the market is probably more efficient than you think. On the face of it, 447 anomalies would seem to suggest the market is easy to beat. But 54% of the anomalies cannot be replicated. What’s more, if one minimises the effect that small-cap stocks have on the results, 85% of the anomalies cannot be replicated. The classic investing factors – value and momentum – survive scrutiny. Value, generally represented by portfolios of cheap stocks, holds up well in the analysis, earning higher expected returns than the general market and growth stocks. Momentum, or strategies that hold o...
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