Accounting for the Anomaly Zoo: A Trading Cost Perspective
55 Pages Posted: 21 Nov 2017 Last revised: 10 Sep 2019
Date Written: September 5, 2019
We study the post-publication trading costs of 120 stock market anomalies. Trading costs use effective bid-ask spreads from high-frequency ISSM and TAQ data when available and average four low-frequency proxies otherwise. The average equal-weighted long-short portfolio nets -3 bps per month post-publication after costs. Optimized cost mitigation using value-weighting and buy/hold spreads dramatically improves net returns in-sample but nets only 4 to 12 bps post-publication on average. The strongest anomalies net just 10-20 bps once selection bias is accounted for. These results show that the average investor should expect tiny profits (alternatively, a tiny risk premium) from investing in anomalies.
Keywords: Stock Return Anomalies, Mispricing, Trading Costs
JEL Classification: G10, G11, G12, G14
Suggested Citation: Suggested Citation