Sensitivity Analyses of Anomalies in Developed Stock Markets

Abstract

The literature on anomalies in developed stock markets produces no consensus on specification. This study uses extreme bound analysis (EBA) to evaluate the robustness of 15 stock-return anomalies given data covering 16 developed markets from May 1984 to March 1999. Two factors are sturdy according to the “extreme” decision rule in the panel design – D/P and momentum. Under a less stringent EBA criterion, long-run lagged returns, country risk, and the January effect are also robust. Time-series EBA for individual markets produces one robust result according to relaxed decision rules across a majority of cases – long-run government bond yields.

Keywords: extreme bound analysis, stock market anomalies, specification bias

JEL Classification: G12, C51