Accounting for the Anomaly Zoo: A Trading Cost Perspective
43 Pages Posted: 21 Nov 2017
Date Written: June 21, 2018
We study the trading costs of 120 published stock market anomalies. Our trading costs use effective spreads from TAQ data when available and an average of several low-frequency spreads otherwise. Trading costs nearly wipe out the average anomaly return in-sample, and completely eliminate the average anomaly return post-publication. Even the best-performing anomalies provide meager net returns of about 15 basis points per month post-publication. Moreover, these best net returns are fragile and tend to disappear over time. Our results hold across a wide variety of portfolio constructions, including many that use cost-mitigation techniques.
Keywords: Stock Return Anomalies, Mispricing, Trading Costs
JEL Classification: G10, G11, G12, G14
Suggested Citation: Suggested Citation