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10

Very good question! I think part of the answer lies in the structure of the financial industry. Some anomalies have a certain kind of structure which cannot be exploited by the players that are big enough to let the anomaly disappear. I would put e.g. the Turn-of-the-month effect (TOTM) into this category since big funds just can't turn their whole ...


7

A very conservative stand is to distinguish between anomalies and arbitrage opportunities. Roughly speaking, while an arbitrage opportunity is risk-free by definition, an anomaly allows for unaccounted risk factors. It is the magnitude of these unidentified risk factors that might determine the long term persistance of certain anomalies. A good starting ...


5

The study you cited seems to be exaggerating slightly. 1) "An interesting fact of returns is that all of the stock returns since 1993 are from overnight returns" -> This is simply factually incorrect. Why don't you pick the S&P 500 names, you calculate the log returns taking into account price changes from the open to the close, then you do the same ...


4

Joel Greenblatt's "magic formula" is similar in spirit to classic value styles. He has a discussion of why he thinks it will continue to work (despite it's simplicity and public knowledge) around p. 73 in his Little Book that Beats the Market (see ...


4

A new explanation that isn't well known (yet) has to do with human capital. Key employees are most likely to leave in January, after bonuses are paid. In anticipation of this risk, prices decline before January, and then if the key people don't leave, prices rise in January. And, voila... the January effect. See this paper. Their results work much better ...


1

No, the "low-beta" anomaly is not the result of the difference between arithmetic and geometric mean returns. Statistical tests verifying the existence of the anomaly rely on models employing the arithmetic mean returns, $$\mu_a = \mu_g + \frac{\sigma^2}{2}$$, hence the penalty excess volatility incurs when compounding returns over time does not explain the ...


1

In the stock market, successful companies are the most innovative ones (esp in biotech, tech) so their individual market is new and their individual market has not been arbitraged away by competitors and governments. Therefore upcoming competitors are going to be as optimistic and correlated to the market leaders. Just from trading shares and financial ...



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