Do Anomalies Exist Ex Ante?
44 Pages Posted: 22 Sep 2008 Last revised: 18 Apr 2013
There are 2 versions of this paper
Do Anomalies Exist Ex Ante?
Do Anomalies Exist Ex Ante?
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: Suggested Citation
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