Which Firms are Responsible for Characteristic Anomalies? A Statistical Leverage Analysis

54 Pages Posted: 13 Oct 2011  

Kevin Aretz

Manchester Business School

Marc Aretz

RWTH Aachen University

Date Written: October 12, 2011

Abstract

We conduct a comprehensive analysis of the rationales proposed in prior studies to explain several well-known characteristic anomalies. Recognizing that only a minority of firms drive these anomalies, we run a statistical leverage analysis to filter out these firms. We then try to forecast the identity of these ‘high leverage firms’ using proxy variables related to the rationales. Our results indicate that traditionally-used risk factors hardly ever explain the anomalies, while idiosyncratic risk together with distress risk is of great importance for the size and the book-to-market anomalies. In contrast, no rationale seems entirely convincing in explaining the momentum anomaly.

Keywords: Characteristic anomalies, statistical leverage analysis, efficient markets

JEL Classification: G11, G12, G15

Suggested Citation

Aretz, Kevin and Aretz, Marc, Which Firms are Responsible for Characteristic Anomalies? A Statistical Leverage Analysis (October 12, 2011). Available at SSRN: https://ssrn.com/abstract=1943480 or http://dx.doi.org/10.2139/ssrn.1943480

Kevin Aretz (Contact Author)

Manchester Business School ( email )

Crawford House
Oxford Road
Manchester M13 9PL
United Kingdom
+44(0) 161 275 6368 (Phone)
+44(0) 161 275 4023 (Fax)

Marc Aretz

RWTH Aachen University ( email )

Templergraben 64
Aachen, 52056
Germany

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