Accounting for the Anomaly Zoo: A Trading Cost Perspective
43 Pages Posted: 21 Nov 2017 Last revised: 20 Sep 2018
Date Written: August 2, 2018
We study the trading costs of 120 published stock market anomalies. Trading costs use effective spreads from TAQ data when available and an average of low-frequency spreads otherwise. The mean in-sample anomaly return of 66 basis points per month is reduced to 9 basis points after trading costs. Post-publication, the average net return is only 2 basis points. Even the best-performing anomalies in-sample provide net returns of only 15 basis points post-publication. Moreover, these best net returns are fragile and tend to disappear over time. The poor performance post-publication holds across many portfolio constructions, including several that use cost-mitigation techniques.
Keywords: Stock Return Anomalies, Mispricing, Trading Costs
JEL Classification: G10, G11, G12, G14
Suggested Citation: Suggested Citation