Zeroing In on the Expected Returns of Anomalies

Andrew Y. Chen, Mihail Velikov

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

We zero in on the expected returns of long-short portfolios based on 204 stock market anomalies by accounting for i) effective bid-ask spreads, ii) post-publication effects, and iii) the modern era of trading technology that began in the early 2000s. Net of these effects, the average anomaly's expected return is a measly 4 bps per month. The strongest anomalies net, at best, 10 bps after controlling for data mining. Several methods for combining anomalies net around 20 bps. Expected returns are negligible despite cost mitigations that produce impressive net returns in-sample and the omission of additional trading costs, like price impact.

Original languageEnglish (US)
Pages (from-to)968-1004
Number of pages37
JournalJournal of Financial and Quantitative Analysis
Volume58
Issue number3
DOIs
StatePublished - May 1 2023

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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