Accounting for the Anomaly Zoo: A Trading Cost Perspective

43 Pages Posted: 21 Nov 2017 Last revised: 6 Aug 2018

Andrew Y. Chen

Federal Reserve Board

Mihail Velikov

Federal Reserve Bank of Richmond

Date Written: August 2, 2018

Abstract

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

Chen, Andrew Y. and Velikov, Mihail, Accounting for the Anomaly Zoo: A Trading Cost Perspective (August 2, 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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