Accounting for the Anomaly Zoo: A Trading Cost Perspective

43 Pages Posted: 21 Nov 2017  

Andrew Y. Chen

Federal Reserve Board

Mihail Velikov

Federal Reserve Bank of Richmond

Date Written: June 21, 2018

Abstract

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

Chen, Andrew Y. and Velikov, Mihail, Accounting for the Anomaly Zoo: A Trading Cost Perspective (June 21, 2018). Available at SSRN: https://ssrn.com/abstract=3073681 or http://dx.doi.org/10.2139/ssrn.3073681

Andrew Y. Chen (Contact Author)

Federal Reserve Board ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-973-6941 (Phone)

HOME PAGE: http://https://sites.google.com/site/chenandrewy/

Mihail Velikov

Federal Reserve Bank of Richmond ( email )

502 S. Sharp Street
Baltimore, MD 21201
United States

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