Do Anomalies Exist Ex Ante?

44 Pages Posted: 22 Sep 2008 Last revised: 18 Apr 2013

See all articles by Yue Tang

Yue Tang

University of Florida - Department of Finance, Insurance and Real Estate

Jin (Ginger) Wu

University of Georgia - Department of Banking and Finance

Lu Zhang, 张橹

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2013

Abstract

The anomalies literature in capital markets research is based (almost) exclusively on average realized returns. In contrast, we construct accounting-based expected returns for dollar neutral long-short trading strategies formed on a wide array of anomaly variables, including book-to-market, size, composite issuance, net stock issues, abnormal investment, asset growth, investment-to-assets, accruals, earnings surprises, failure probability, return on assets, and short-term prior returns. Our findings are striking. Except for the value and the size premiums, cost of equity estimates differ drastically from average realized returns. We provide economic interpretations based on both mispricing and measurement errors in expected returns.

Keywords: capital markets anomalies, expected return estimates, dividend discounting

JEL Classification: G12, G14

Suggested Citation

Tang, Yue and Wu, Jin (Ginger) and Zhang, Lu, Do Anomalies Exist Ex Ante? (March 2013). Available at SSRN: https://ssrn.com/abstract=1270973 or http://dx.doi.org/10.2139/ssrn.1270973

Yue Tang

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-273-4447 (Phone)

Jin (Ginger) Wu

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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