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« Ladies and gentlemen . . . the American tax system! | Main | I hope you like federal regulations »

December 04, 2012

It's not enough to *find* an anomaly . . .

. . . ya gotta keept it secret, too. Tim Harford, "Still Think You Can Beat the Market?"

A new research paper by David McLean and Jeffrey Pontiff explicitly examines the idea that academic research into anomalies is a self-denying endeavour. They find some evidence of spurious patterns: if a given dataset suggests an anomaly, including subsequent data tends to erode it. But what is really striking is that after an anomaly has been published, it quickly shrinks – although it does not disappear.

The anomalies are most likely to persist when they apply to small, illiquid markets – as one might expect, because there it is harder to profit from the anomaly.

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Brent Buckner

OTOH, to my mind Fama & French simply re-categorized the value anomaly as a risk factor, explaining it away as opposed to it actually going away.

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