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Post-discovery Effects on Anomaly Return Sequence

July 29, 2021 • Posted in Big Ideas

Does anomaly publication lead to its speedy exploitation? In his March 2021 paper entitled “The Race to Exploit Anomalies and the Cost of Slow Trading”, Guy Kaplanski studies a sample of widely accepted U.S. stock return anomalies to determine how discovery and publication of an anomaly affects the timing of future returns. He quantifies anomalies by each month sorting stocks into fifths, or quintiles, on each anomaly variable and reforming a portfolio that is long (short) the quintile with the highest (lowest) predicted returns. Using discovery (December of the last year in the discovery sample) and publication dates for 71 anomalies, along with associated anomaly data and daily prices for all reasonably liquid U.S. common stocks during January 1973 through December 2018, he finds that: (more…)

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