Anomaly Returns Research Articles

Institutional Trading and Anomalies

We study whether institutional investors trade on stock market anomalies. We condition our analysis on whether information about the anomalies is readily available to investors through academic publication and the release of necessary accounting data. Using 14 well-documented anomalies, we observe an increase in anomaly-based trading among institutional investors, especially hedge funds and transient institutions, following the publication of research on anomalies. We directly relate this increase in trading to the observed decay in post-publication anomaly returns. In contrast to recent evidence, our findings support the role of institutional investors in the arbitrage process and in improving market efficiency.

Aggregate Mutual Fund Flows and Cross-Sectional Anomalies

I examine the explanatory power of aggregate mutual fund flows for the profitability of price-based (i.e., momentum and 52-week high) and non-price-based (i.e., earnings surprises, profitability, share issuance, accrual and asset growth) anomalies in the cross-section of returns. I find that the flow-based trading of mutual funds contributes to mispricing as measured by the profits to price-based anomalies, especially at times when market-wide funding costs are high. The effect also exists for non-price-based anomalies, but only through the dependence of their profits on momentum. My findings support the view of Lou (2012) and Vayanos and Woolley (2013) that mutual funds’ trading on flows creates feedback that strengthens price-based anomalies, as high-performing funds buy additional shares of high-performing stocks and poorly performing funds sell shares of poorly performing stocks. However, the explanatory power of aggregate mutual fund flows for price-based anomaly returns is only partly attenuated by fund-level variables designed to capture the feedback effect. The flow-induced trading by mutual funds appears to contribute to mispricing for reasons beyond the feedback effect.

Which drives abnormal returns, over- or under-reaction? Studies applying longitudinal analysis

This article combined both cross-sectional and time-series longitudinal analysis to identify that factor anomalies are driven by either over-reaction or under-reaction. The basic principle is, first, use a factor to form 10 portfolios in the t quarter, then observe the average prices and returns of the 10 portfolios for the previous four quarters and for the following four quarters as well. Samples in this study contain all stocks listed in the US from 1990 to 2010. The empirical evidence shows that the reason for the abnormal returns of value (book-to-price ratios, earnings-to-price ratios, sales-to-price ratios), scale and liquidity factors is over-reaction. Meanwhile, the reason for the abnormal returns of growth factors (return on equity, return on assets and revenue growth rate) is under-reaction. The results provide significant policy implications. The anomaly returns of the value, scale and liquidity factors last longer and are more appropriate to be employed for long-run investment while the growth factors are better suited for short-run investment. Furthermore, a more profitable stock-selection strategy can be formed by simultaneously considering the above two types of factors to capture both of these two sources of anomaly returns.

Dissecting anomalies in the Australian stock market

The study examines the pervasiveness of eight well-documented anomalies in global equity markets for the Australian stock market. After partitioning stocks into three size categories (micro, small and big), we find that none of the eight anomalies are pervasive across size groups in either sorts or cross-sectional regressions. The existence of size, value, profitability, asset growth and accruals anomalies is primarily attributable to micro-cap stocks. Momentum and asset growth predict the expected returns of big stocks, but momentum does not predict the returns on micro stocks, and asset growth does not matter for small stocks. Contrarian returns are largely explained by stock size and value dimensions. Evidence for the earnings growth anomaly contradicts the growth extrapolation hypothesis. By looking at the hedge portfolio returns of anomalies in different regimes, we also show that many anomalies tend to exist in bear markets rather than bull markets. This evidence contradicts the risk-based explanations for the existence of anomalies.

The Long of It: Odds That Investor Sentiment Spuriously Predicts Anomaly Returns

Extremely long odds accompany the chance that spurious-regression bias accounts for investor sentiment's observed role in stock-return anomalies. We replace investor sentiment with a simulated persistent series in regressions reported by Stambaugh, Yu and Yuan (2012), who find higher long-short anomaly profits following high sentiment, due entirely to the short leg. Among 200 million simulated regressors, we find none that support those conclusions as strongly as investor sentiment. The key is consistency across anomalies. Obtaining just the predicted signs for the regression coefficients across the 11 anomalies examined in the above study occurs only once for every 43 simulated regressors.

Stream sediment geochemistry of Sn, Au and associated elements in Southeast Asia

This paper summarises and reviews some detailed orientation surveys, case histories and experimental studies of the behaviour of cassiterite and gold in streams in SE Asia as a basis for recommendations on the design and interpretation of exploration geochemical surveys for these elements. In the tropical rain forests of SE Asia the frequent rain storms mobilize stream sediments and rapidly flush very fine sand, silt and clay from the stream bed in suspension. This flushing process causes fine heavy minerals such as cassiterite and gold to preferentially accumulate on the bed of the stream. The most consistent and longest geochemical dispersion trains for elements transported as heavy minerals are thus found in the very fine sand fractions « 100 l1m). Use of coarser fractions, collected at heavy mineral trap sites, gives more erratic geochemical anomalies that are often displaced downstream away from their source. During interpretation these displaced anomalies can be recognised by: (i) ratioing Au or Sn values to either abundance of a ubiquitous heavy mineral (e.g., magnetite) or the transport equivalent size of the stream sediment; (ii) by absence of mobile pathfinder elements (e.g., As and base metals); or (iii) from field observations of stream width, velocity, bed roughness and gradient that permit favourable sites for heavy mineral accumulation to be identified. Where removal of the rain forest and conversion ofland to agricultural production greatly increases rates of soil erosion, the accumulations of heavy minerals can be diluted to the extent that Au anomalies may go undetected. Possible answers to this problem are: (i) use of more sensitive analytical procedures; (ii) elimination of the silt-clay fraction and analysis offine sand (53-100 l1m) fraction; or (iii) use of heavy mineral concentrates. Once soil erosion is minimized by re-establishing a cover of ground vegetation, as in mature rubber plantations, fine sediments are again flushed from the stream bed and geochemical anomalies return to more natural conditions with accumulations of heavy minerals on the stream bed.

Aspects of exploration geochemistry in Southeast Asia: soils, sediments and potential for anthropogenic effects

Compared with the rain forests of the old shield areas of West Africa and the Amazon Basin, the rain forests of SE Asia are characterized by high relief, active tectonism and volcanism. These features, together with heavy tropical rains, result in the major rivers having some of the highest sediment yields in the world. Smaller streams and rivers, even in areas of only moderate relief, have coarse sand and gravel beds. Frequent tropical rain storms mobilize these sediments and rapidly flush very fine sand, silt and clay from the stream bed in suspension. During this flushing process fine-grained heavy minerals, for example gold and cassiterite, lag behind and accumulate on the bed of the stream. Because the finer (< 100 μm) light mineral particles are most readily flushed away in suspension, the most consistent and longest geochemical dispersion trains for elements transported as heavy minerals are found in the very fine sand and silt fractions. Use of coarser fractions gives shorter, more erratic geochemical anomalies. Logging of tropical rain forests and conversion of land to agricultural use greatly increases rates of soil erosion. Studies of Au anomalies in Thailand indicate that, depending on the extent of the soil anomaly within a catchment basin, this can dilute Au concentrations to a point where the Au anomaly in sediments can go undetected. However, if soil erosion is minimized by re-establishing a cover of ground vegetation, as in mature rubber plantations, fine sediments are again flushed from the stream bed and geochemical anomalies return to more natural conditions with accumulations of heavy minerals on the stream bed.

Crustal structure beneath the southern Appalachians: Nonuniqueness of gravity modeling

Gravity models computed for a profile across the long-wavelength paired negative-positive Bouguer anomalies of the southern Appalachian Mountains show that the large negative anomaly can be explained by a crustal root zone, whereas the steep gradient and positive anomaly east of the root may be explained equally well by three different geometries: a suture zone, a mantle upwarp, or a shallow body. Seismic data support the existence of a mountain root but are inadequate to resolve differences among the three possible geometries for the positive anomaly. The presence of outcropping mafic and ultramafic rocks in the southern Appalachians and the inferred tectonic history of the Appalachian orogen are most consistent with the suture-zone model. Crust similar to continental crust probably exists beneath the Coastal Plain and inner continental shelf where the gravity anomalies return to near-zero values.