Do Anomalies Exist Ex Ante?

Review of Finance, forthcoming

27 Pages Posted: 4 Oct 2010 Last revised: 31 May 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: June 1, 2013

Abstract

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

Tang, Yue and Wu, Jin (Ginger) and Zhang, Lu, Do Anomalies Exist Ex Ante? (June 1, 2013). Review of Finance, forthcoming. Available at SSRN: https://ssrn.com/abstract=1685985 or http://dx.doi.org/10.2139/ssrn.1685985

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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