Chapter 25: Stock Market Anomalies

Financial Behavior: Players, Services, Products, and Markets. H. Kent Baker, Greg Filbeck, and Victor Ricciardi, editors, 460-480, . New York, NY: Oxford University Press, 2017.

Posted: 14 Jun 2017

See all articles by Steve Z. Fan

Steve Z. Fan

University of Wisconsin - Whitewater

Linda Q. Yu

University of Wisconsin - Whitewater - Finance and Business Law

Date Written: June 1, 2017

Abstract

Stock market anomalies representing the predictability of cross-sectional stock returns are one of most controversial topics in financial economic research. This chapter reviews several well-documented and pervasive anomalies in the literature, including investment-related anomalies, value anomalies, momentum and long-term reversal, size, and accruals. Although anomalies are widely accepted, much disagreement exists on the underlying reasons for their predictability. This chapter surveys two competing theories that attempt to explain the presence of stock market anomalies: rational and behavioral. The rational explanation focuses on the improvement of the existing asset pricing models and/or searching for additional risk factors to explain the existence of anomalies. By contrast, the behavioral explanation attributes the predictability to human behavioral biases in collecting and processing financial information, as well as in making investment decisions.

Keywords: behavioral finance, behavioural finance, stock market anomalies, predictability, rational explanation, behavioral explanation

JEL Classification: A12, D81, G00, G30, G10, M00, M10, M41

Suggested Citation

Fan, Steve Z. and Yu, Linda Q., Chapter 25: Stock Market Anomalies (June 1, 2017). Financial Behavior: Players, Services, Products, and Markets. H. Kent Baker, Greg Filbeck, and Victor Ricciardi, editors, 460-480, . New York, NY: Oxford University Press, 2017., Available at SSRN: https://ssrn.com/abstract=2984879

Steve Z. Fan (Contact Author)

University of Wisconsin - Whitewater ( email )

800 W. Main Street
Whitewater, WI 53190
United States

Linda Q. Yu

University of Wisconsin - Whitewater - Finance and Business Law ( email )

Whitewater, WI 53190
United States

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