Time‐series and cross‐sectional momentum in anomaly returns

We find strong evidence of time‐series and cross‐sectional momentum in the long–short returns of a comprehensive sample of anomalies. Strategies that exploit such persistence deliver significant abnormal returns that are robust to the stock momentum effect, cannot be explained by traditional asset‐pricing models, and are more pronounced when arbitrage capital is scarcer or market liquidity is lower. Momentum in anomaly returns dissipates but does not reverse, in the long‐run. Our findings are consistent with limits‐to‐arbitrage and slow‐moving capital causing mispricing to persist. Supporting this explanation, we find that both the level and persistence of anomaly returns are positively related to idiosyncratic volatility.