Quants and Market Anomalies

Sell-side quantitative equity research analysts (Quants) conduct econometric analyses of stock returns to uncover market anomalies and assist equity analysts and institutional clients with stock selection. We present novel evidence that establishes their role in helping analysts and mutual fund clients discover market anomalies and capital markets evolve toward greater pricing efficiency. Specifically, we find that analysts and mutual fund clients with greater access to Quants make recommendations and trades that reveal greater knowledge of anomalous cross-sectional return predictability. More importantly, cross-sectional return predictability is weaker in stocks that have higher coverage (ownership) by analysts (mutual fund clients) with access to Quants, and strengthens when quasi-exogenous brokerage house closures reduce the availability of Quants.

Keywords: analyst recommendations, analyst research, mutual funds, institutional trading, anomalies, quantitative research, quants, market efficiency, cross-sectional return predictability

JEL Classification: G00, G11, G14, G23, G24

Suggested Citation: Suggested Citation

Birru, Justin and Gokkaya, Sinan and Liu, Xi and Markov, Stanimir, Quants and Market Anomalies (March 2, 2022). Fisher College of Business Working Paper No. 2018-03-007, Charles A. Dice Center Working Paper No. 2018-07, Available at SSRN: https://ssrn.com/abstract=3152641 or http://dx.doi.org/10.2139/ssrn.3152641