A Reconciliation of Stock Market Anomalies

Download or read book A Reconciliation of Stock Market Anomalies written by Jana Smith Raedy and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a reconciliation of many of the market anomalies documented in prior literature. While previous papers examined four or fewer anomalies, this paper utilizes regression analysis to reconcile eleven prevalent anomalies simultaneously. The major results of this paper are as follows. First, counter to Fama and French (1996), the cash-to-price anomaly is not subsumed by the book-to-market and size anomalies in this setting. Second, the short-term price momentum anomaly is subsumed by the long-term return reversal anomaly. Third, again counter to Fama and French (1996), the long-term return reversal strategy is not eliminated in the presence of the book-to-market and size anomalies. Other results indicate that the earnings-to-price anomaly is subsumed by the cash-to-price anomaly; the short-term returns to the Ou and Penman (1989a, 1989b) strategy is subsumed by post-earnings-announcement drift; and the long-term returns are subsumed by the size effect. Also, the Holthausen and Larcker (1992) anomaly is subsumed by the operating accrual anomaly, and the Abarbanell and Bushee (1998) anomaly is subsumed by the earnings-to-price anomaly. By determining which anomalies proxy for others, this research makes it possible for future studies to focus on the causes of the independent anomalies, in particular regarding the issue of identifying mispricing versus risk in trading strategies.