Description
Book SynopsisInvestment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market.
Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trad
Table of Contents
Preface xi
Acknowledgments xvii
CHAPTER 1 Conceptual Foundations of Capital Market Anomalies 1
Mozaffar Khan
Efficient Markets 2
Identifying Anomalies in Capital Markets 3
Explaining Anomalies 5
Anomalies: Weighing the Evidence 10
Appendix 1.1: Risk and Expected-Return Models 10
References 17
CHAPTER 2 The Accrual Anomaly 23
Patricia M. Dechow, Natalya V. Khimich, and Richard G. Sloan
What Are Accruals? 24
Sloan (1996) in a Nutshell 32
Extensions of Sloan (1996) 38
Alternative Explanations for the Accrual Anomaly 45
Practical Implications 51
Appendix 2.1: Estimation and Testing Framework Used in Sloan (1996) 52
Appendix 2.2: Details on the Broader Definition of Accruals 54
References 59
CHAPTER 3 The Analyst Recommendation and Earnings Forecast Anomaly 63
George Serafeim
Role of Research Analysts 63
Investment Recommendations 64
Earnings Forecast Revisions 73
Determinants of Forecast Revisions 76
International Evidence 78
Overview of the Investment Performance of
Forecast Revisions 79
Appendix 3.1: Details of Returns to
Recommendation Strategies 79
References 87
CHAPTER 4 Post-Earnings Announcement Drift and Related Anomalies 91
Daniel Taylor
The Basics of the Anomaly 92
Measuring Earnings Surprises 99
Sources of Post-Earnings Announcement Drift 102
Extensions 106
Institutional Investors 108
Individual Investors 110
References 112
CHAPTER 5 Fundamental Data Anomalies 117
Ian Gow
Fundamental Metrics 118
Distress Risk 122
Capital Investment and Growth Anomalies 123
International Evidence 125
Conclusion 126
References 126
CHAPTER 6 Net Stock Anomalies 129
Daniel Cohen, Thomas Lys, and Tzachi Zach
Initial Public Offerings 130
Seasoned Equity Offerings 132
Debt Issuances 133
Share Repurchases and Tender Offers 134
Dividend Initiation and Omissions 136
Private Equity Placement 138
Overall Net External Financing 138
Mergers and Acquisitions 141
International Evidence 142
Other Explanations for the Abnormal Returns 143
References 144
CHAPTER 7 The Insider Trading Anomaly 147
Ian Dogan
Overview of Insider Filings 148
Documentation of the Anomaly 148
Results for the 1978–2005 Period 150
How Consistent Is the Anomaly Year by Year? 152
When Are Returns Generated during the 1-Year Holding Periods? 154
Returns in Small Cap versus Large Cap 155
Does It Work on the Short Side? 156
Do Returns Vary by Industry? 160
Institutional Investors 162
Individual Investors 162
Relation to Other Anomalies 163
International Evidence 164
Can Insider Data Predict S&P 500 Returns? 165
Latest Developments 166
Long/Short Strategy for Institutional Investors 167
References 170
CHAPTER 8 Momentum: The Technical Analysis Anomaly 173
Lee M. Dunham
History of Technical Analysis and Momentum 176
Assessing Momentum and Reversal in Stock Prices 178
Early Influential Work on Momentum and Reversals 179
Improving Upon Momentum Strategies 184
Moving Averages 186
52-Week High/Low 187
Momentum at Industry Levels 188
Momentum and Mutual Funds 189
Is Technical Analysis Profitable? 190
Institutional Investors 193
Explanations for Momentum and Reversals 195
International Evidence 198
References 200
CHAPTER 9 Seasonal Anomalies 205
Constantine Dzhabarov and William T. Ziemba
January Effect 206
The January Barometer 213
Sell-in-May-and-Go-Away 221
Holiday Effects 226
Day-of-the-Week Effects 231
Seasonality Calendars 234
Political Effects 237
Turn-of-the-Month Effects 248
Open/Close Daily Trade on the Open 254
Weather: Sun, Rain, Snow, Moon, and the Stars 255
Conclusions and Final Remarks 256
References 256
CHAPTER 10 Size and Value Anomalies 265
Oleg A. Rytchkov
The Early Days 265
Fama-French Three-Factor Model 266
Value Anomaly: Risk or Mispricing? 267
Alternative Value Indicators 269
Time Variation in the Value Premium 270
Cross-Sectional Variation in the Value Premium 273
Anatomy of the Size Anomaly 275
International Evidence 278
Value Premium: Evidence from Alternative Asset
Classes 279
References 281
CHAPTER 11 Anomaly-Based Processes for the Individual Investor 285
Leonard Zacks
Increasing Returns Using Market Neutral 286
Using ETFs to Add a Market Neutral Asset to a Portfolio 291
Using Stock Scoring Systems to Outperform Indexes 292
Implementation of Anomaly-Based Quant Processes 296
End of the Tour 305
References 305
APPENDIX Use of Anomaly Research by Professional Investors 307
From Academia to Wall Street 307
Statistical Arbitrage 308
High-Frequency Trading 309
Multifactor Models 309
Assets in Market Neutral Portfolios 310
Assets in Long Portfolios 311
United States versus International 313
References 314
About the Contributors 317
Index 323
