Zeroing in on the expected returns of anomalies
We zero in on the expected returns of long-short portfolios based on 120 stock market anomalies by accounting for (1) effective bid-ask spreads, (2) post-publication effects, and (3) the modern era of trading technology that began in the early 2000s. Net of these effects, the average anomaly&...
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Veröffentlicht in: | Finance and economics discussion series 2020, Vol.2020.0 (39) |
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Format: | Text Resource |
Sprache: | eng |
Online-Zugang: | Volltext |
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Zusammenfassung: | We zero in on the expected returns of long-short portfolios based on 120 stock market anomalies by accounting for (1) effective bid-ask spreads, (2) post-publication effects, and (3) the modern era of trading technology that began in the early 2000s. Net of these effects, the average anomaly's expected return is a measly 8 bps per month. The strongest anomalies return only 10-20 bps after accounting for data-mining with either out-of-sample tests or empirical Bayesian methods. Expected returns are negligible despite cost optimizations that produce impressive net returns in-sample and the omission of additional trading costs like price impact. |
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ISSN: | 1936-2854 |
DOI: | 10.17016/FEDS.2020.039 |