Accounting for the Anomaly Zoo: A Trading Cost Perspective
28 Pages Posted: 21 Nov 2017
Date Written: November 18, 2017
This study shows that trading costs and post-publication decay can account for the entire zoo of stock return anomalies. We examine the returns net of trading costs for 135 published stock market anomalies under a wide variety of portfolio constructions, including many that use cost-mitigation techniques. The average anomaly earns a negative net return of -8 basis points per month in-sample. Anomalies with positive net returns in-sample deteriorate, leading to negative net returns post-publication. The best-performing combination of anomalies and portfolio construction nets a meager 25 basis points per month immediately after publication, but even these net returns fall to zero within 15 years, and are highly sensitive to the portfolio construction.
Keywords: Stock Return Anomalies, Mispricing, Trading Costs
JEL Classification: G10, G11, G12, G14
Suggested Citation: Suggested Citation