Anomalies Enhanced: Don’t be passive as information arrives
62 Pages Posted: 1 Jul 2015 Last revised: 2 Apr 2018
Date Written: March 27, 2018
Many anomalies are based on ﬁrm characteristics and are rebalanced yearly, ignoring any information during the year. In this paper, we provide dynamic trading strategies to rebalance the anomaly portfolios monthly. For eight major anomalies, we ﬁnd that these dynamic trading strategies substantially enhance their economic importance, with improvements in the Fama and French (2015) risk-adjusted abnormal return ranging from 0.40% to 0.75% per month. The results are robust to a number of controls. Our ﬁndings indicate that many well known anomalies are more proﬁtable than previously thought, yielding new challenges for their theoretical explanations.
Keywords: Anomaly, low frequency information, volatility timing, technical analysis
JEL Classification: G11, G23
Suggested Citation: Suggested Citation