Assessing Assets Pricing Anomalies (original) (raw)

Trading Costs of Asset Pricing Anomalies

Using nearly a trillion dollars of live trading data from a large institutional money manager across 19 developed equity markets over the period 1998 to 2011, we measure the real-world transactions costs and price impact function facing an arbitrageur and apply them to size, value, momentum, and short-term reversal strategies. We find that actual trading costs are less than a tenth as large as, and therefore the potential scale of these strategies is more than an order of magnitude larger than, previous studies suggest. Furthermore, strategies designed to reduce transactions costs can increase net returns and capacity substantially, without incurring significant style drift. Results vary across styles, with value and momentum being more scalable than size, and short-term reversals being the most constrained by trading costs. We conclude that the main anomalies to standard asset pricing models are robust, implementable, and sizeable., and seminar participants at the University of Chicago and Harvard Business School for helpful comments. We also thank Laura Serban for outstanding research assistance. Moskowitz thanks the Center for Research in Security Prices for financial support. Moskowitz has an ongoing consulting relationship with AQR Capital, which invests in, among other strategies, many of the aforementioned anomalies studied in this paper.

The nexus of anomalies-stock returns-asset pricing models: the international evidence

Borsa IStabul Review, 2018

We study the international stock returns across Europe, Asia Pacific, North America, US, Japan, Global, and Global excluding US. We find there are value premiums in average stock returns across the regions. There is momentum return in all the regions except for Japan. With the exception of Japan, profitability and investment premiums in average stock returns exist across the regions. Further, the value, momentum, and profitability premiums vary with the firm size and premiums decrease from smaller to bigger stocks excluding Japan. We examine whether empirical asset pricing models capture the value, momentum, profitability, and investment pattern in international average returns, and the integration of the asset prices across the regions. We reject the global integrated pricing approach. The performance of local Carhart four-factor model is superior for Japanese size-B/M and size-momentum portfolios. Consequently, the FF five-factor model performs superior for Asia Pacific, North American, and Japanese size-profitability portfolios. In addition, FF five-factor model performs superior for European and Japanese size-investment portfolios.

An Examination of Pricing Anomalies for Australian Stocks

2021

The beta coefficient of the capital asset pricing model (CAPM) has been a widely used single factor for determining the returns on risky assets, e.g., company stocks. The other attributing factors are deemed anomalies and assumed to only exist temporarily and not considered as fundamental factors in the determination of returns on risky assets. The purpose of this study is to examine the details of two other pricing factors, in addition to the CAPM beta, in the return characteristics for the Australian stock market. These two factors are the different sizes of firms (SMB) and the ratios between their book values and market values (HML). The study period is from 1 st January 2000 through 31 st December 2017. The SMB and HML factors are calculated using scientific methodology, which makes a considerable contribution to the Australian stock market literature. The findings suggest that the regression coefficients of both SMB and HML factors are statistically more significant than the be...

Abnormal Portfolio Asset Allocation Model: Review

International Journal of Business, Economics, and Social Development, 2020

It has been widely studied how investors will allocate their assets to an investment when the return of assets is normally distributed. In this context usually, the problem of portfolio optimization is analyzed using mean-variance. When asset returns are not normally distributed, the mean-variance analysis may not be appropriate for selecting the optimum portfolio. This paper will examine the consequences of abnormalities in the process of allocating investment portfolio assets. Here will be shown how to adjust the mean-variance standard as a basic framework for asset allocation in cases where asset returns are not normally distributed. We will also discuss the application of the optimum strategies for this problem. Based on the results of literature studies, it can be concluded that the expected utility approximation involves averages, variances, skewness, and kurtosis, and can be extended to even higher moments.

Asset pricing anomalies: Evidence from oil industry

ABSTRACT Recent research that has identified industry-related patterns finds that standard asset pricing models cannot explain effectively. This paper investigates whether industry commodity dependence affects the cross section of stock returns, using the case of the oil industry. The results show that in the period 1988-2009, a value (equally) weighted portfolio of high oil beta stocks outperforms a portfolio of low oil beta stocks by 1.1%(1.25%) in average per month, and approximately 13.24%(14.97%) in average annually.