Abstract

http://ssrn.com/abstract=2029057
 
 

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Have Capital Market Anomalies Attenuated in the Recent Era of High Liquidity and Trading Activity?


Tarun Chordia


Emory University - Department of Finance

Avanidhar Subrahmanyam


University of California, Los Angeles (UCLA) - Finance Area; Centre for International Finance and Regulation (CIFR)

Qing Tong


Singapore Management University - Lee Kong Chian School of Business

May 12, 2014

Journal of Accounting & Economics (JAE), Vol. 58, No. 1, 2014

Abstract:     
We examine whether the recent regime of increased liquidity and trading activity is associated with attenuation of prominent equity return anomalies due to increased arbitrage. We find that the majority of the anomalies have attenuated, and the average returns from a portfolio strategy based on prominent anomalies have approximately halved after decimalization. We provide evidence that hedge fund assets under management, short interest and aggregate share turnover have led to the decline in anomaly-based trading strategy profits in recent years. Overall, our work indicates that policies to stimulate liquidity and ameliorate trading costs improve capital market efficiency.

Number of Pages in PDF File: 50

Keywords: Anomalies, market efficiency, cross-section of returns

JEL Classification: G12, G14

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Date posted: March 27, 2012 ; Last revised: July 23, 2014

Suggested Citation

Chordia, Tarun and Subrahmanyam, Avanidhar and Tong, Qing, Have Capital Market Anomalies Attenuated in the Recent Era of High Liquidity and Trading Activity? (May 12, 2014). Journal of Accounting & Economics (JAE), Vol. 58, No. 1, 2014. Available at SSRN: http://ssrn.com/abstract=2029057 or http://dx.doi.org/10.2139/ssrn.2029057

Contact Information

Tarun Chordia
Emory University - Department of Finance ( email )
Atlanta, GA 30322-2710
United States
404-727-1620 (Phone)
404-727-5238 (Fax)
Avanidhar Subrahmanyam (Contact Author)
University of California, Los Angeles (UCLA) - Finance Area ( email )
Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)
Centre for International Finance and Regulation (CIFR) ( email )
Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Qing Tong
Singapore Management University - Lee Kong Chian School of Business ( email )
50 Stanford Road
Singapore, 178899
Singapore

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