Capital Market Anomalies and Quantitative Research

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

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

58 Pages Posted: 3 Apr 2018 Last revised: 22 Apr 2019

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

Date Written: April 10, 2019

Abstract

Quantitative research analysts (Quants) produce in-depth quantitative and econometric modeling of market anomalies to assist sell-side analysts and institutional clients with stock selection strategies. Quants are associated with more efficient analyst forecasting behavior on anomaly predictors — stock recommendations and target prices on anomaly-longs (anomaly-shorts) are more (less) favorable and investment value of analyst research is higher. Quant research facilitates “smart money” trades of institutional clients on anomaly stocks — the likelihood of purchasing underpriced (overpriced) stocks unconditionally and in response to inflows is higher (lower) for client funds. Finally, we provide evidence that, all else equal, cross-sectional return predictability of anomaly long-short strategies is attenuated for stocks with increased Quant coverage. The evidence is consistent with the interpretation that Quants add value to financial markets, and consequently, increase market efficiency with respect to anomaly predictors.

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, Capital Market Anomalies and Quantitative Research (April 10, 2019). 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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
683
Abstract Views
3,258
rank
48,901
PlumX Metrics