Quants and Market Anomalies

Fisher College of Business Working Paper No. 2018-03-007

Charles A. Dice Center Working Paper No. 2018-07

62 Pages Posted: 3 Apr 2018 Last revised: 3 Mar 2022

See all articles by Justin Birru

Justin Birru

Ohio State University (OSU) - Department of Finance

Sinan Gokkaya

Department of Finance, Ohio University

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration

Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: March 2, 2022

Abstract

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

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

Justin Birru (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Sinan Gokkaya

Department of Finance, Ohio University ( email )

207 Muck College of Business
Athens, OH 45701
United States

HOME PAGE: http://business.ohio.edu/about/faculty-staff/gokkaya-sinan/

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration ( email )

Oxford, OH 45056
United States

Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
972 883 5166 (Phone)

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