Do Anomalies Exist Ex Ante?
Review of Finance, forthcoming
27 Pages Posted: 4 Oct 2010 Last revised: 31 May 2013
Date Written: June 1, 2013
The anomalies literature in capital markets research in finance and accounting 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, the cost of equity estimates differ drastically from the average realized returns.
Keywords: Capital markets anomalies, Expected return estimates, Implied costs of equity, The residual income model, Implied growth rates, Risk, Mispricing
JEL Classification: G12, G14
Suggested Citation: Suggested Citation