The Handbook of Equity Market Anomalies Translating Market Inefficiencies into Effective Investment Strategies

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  • Format: Hardcover
  • Copyright: 2011-10-04
  • Publisher: Wiley
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The Zacks Handbook of Investment Anomalies will be the definitive work that presents and updates academic and practitioner research on market inefficiencies that can be translated into effective investment strategies. Edited by Len Zacks, a CEO of Zacks Investment Research, the book will explore earnings revisions and surprises; trading by company insiders; stock price momentum patterns; low price-earnings ratios; sector characteristics; seasonal patterns and other areas or market inefficiencies. The goal will be to present historical research on definable situations where particular stocks outperform the overall market. The insights from the research can then be utilized to construct a market-beating strategy going forward. While many of the chapters will be written by academics, an effort will be made to make the articles engaging and interesting to investment practitioners. The initial table of contents might be something like: Theoretical Framework within which to discuss market inefficiencies EPS Surprises- trading around EPS announcement dates Estimate Revisions - the oldest anomaly Insider Trading - it works if you clean the data Balance Sheet Accruals - longer term profits Price Momentum - 50 ways to measure it , do any work ? Low PE - when , why, and does it work Best Anomalies in each Sector - what works in each Sector Academically sound Technical Analysis - it's a new world Calendar based anomalies - do they exist ,can you make money using them Anomalies in Non US Markets ( 1 to 10 outside the US ) Selecting Mutual Funds -can you predict manager performance High Frequency trading anomalies - got a second?

Author Biography

Leonard Zacks has been Chairman and CEO of Zacks Investment Research since 1978. Prior to that, he held several positions with A.G. Becker, a Chicago-based brokerage firm, including investment analyst, assistant to the president, and product development manager. Zacks was an associate at McKinsey & Company in New York and an analyst at the Rand Corporation in California. He holds a PhD in operations research from the Massachusetts Institute of Technology.

Table of Contents

Prefacep. xi
Acknowledgmentsp. xvii
Conceptual Foundations of Capital Market Anomaliesp. 1
Efficient Marketsp. 2
Identifying Anomalies in Capital Marketsp. 3
Explaining Anomaliesp. 5
Anomalies: Weighing the Evidencep. 10
Appendix 1.1: Risk and Expected-Return Modelsp. 10
Referencesp. 17
The Accrual Anomalyp. 23
What Are Accruals?p. 24
Sloan (1996) in a Nutshellp. 32
Extensions of Sloan (1996)p. 38
Alternative Explanations for the Accrual Anomalyp. 45
Practical Implicationsp. 51
Appendix 2.1: Estimation and Testing Framework Used in Sloan (1996)p. 52
Appendix 2.2: Details on the Broader Definition of Accrualsp. 54
Referencesp. 59
The Analyst Recommendation and Earnings Forecast Anomalyp. 63
Role of Research Analystsp. 63
Investment Recommendationsp. 64
Earnings Forecast Revisionsp. 73
Determinants of Forecast Revisionsp. 76
International Evidencep. 78
Overview of the Investment Performance of Forecast Revisionsp. 79
Appendix 3-1: Details of Returns to recommendation Strategiesp. 79
Referencesp. 87
Post-Earnings Announcement Drift and related anomaliesp. 91
The Basics of the anomalyp. 92
Measuring earnings surprisesp. 99
Sources of Post-earnings announcement driftp. 102
Extentionsp. 106
Institutional Investorsp. 108
Individual Investorsp. 110
Referencesp. 112
Fundamental Data Anomaliesp. 117
Fundamental Metricsp. 118
Distress Riskp. 122
Capital Investment and Growth Anomaliesp. 123
International Evidencep. 125
Conclusionp. 126
Referencesp. 126
Net Stock Anomaliesp. 129
Initial Public Offeringsp. 130
Seasoned Equity Offeringsp. 132
Debt Issuancesp. 133
Share Repurchases and Tender Offersp. 134
Dividend Initiation and Omissionsp. 136
Private Equity Placementp. 138
Overall Net External Financingp. 138
Mergers and Acquisitionsp. 141
International Evidencep. 142
Other Explanations for the Abnormal Returnsp. 143
Referencesp. 144
The Insider Trading Anomalyp. 147
Overview of Insider Filingsp. 148
Documentation of the Anomalyp. 148
Results for the 1978-2005 Periodp. 150
How Consistent Is the Anomaly Year by Year?p. 152
When Are Returns Generated during the 1-Year Holding Periods?p. 154
Returns in Small Cap versus Large Capp. 155
Does It Work on the Short Side?p. 156
Do Returns Vary by Industry?p. 160
Institutional Investorsp. 162
Individual Investorsp. 162
Relation to other Anomaliesp. 163
International Evidencep. 164
Can Insider Data -Predict-SSP 500 Returns?p. 165
Latest Developmentsp. 166
Long/Short Strategy for Institutional Investorsp. 167
Referencesp. 170
Momentum, The Technical Analysis Anomalyp. 173
History of Technical Analysis and Momentump. 176
Assessing Momentum and Reversal in Stock Pricesp. 178
Early Influential Work on Momentum and Reversalsp. 179
Improving Upon Momentum Strategiesp. 184
Moving Averagesp. 186
52-Week High/Lowp. 187
Momentum at Industry Levelsp. 188
Momentum and Mutual Fundsp. 189
Is Technical Analysis Profitable?p. 190
Institutional Investorsp. 193
Explanations for Momentum and Reversalsp. 195
International Evidencep. 198
Referencesp. 200
Seasonal Anomaliesp. 205
January Effectp. 206
The January Barometerp. 213
Sell-in-May-and-Go-Awayp. 221
Holiday Effectsp. 226
Day-of-the-Week Effectsp. 231
Seasonality Calendarsp. 234
Political Effectsp. 237
Turn-of-the-Month Effectsp. 248
Open/Close Daily Trade on the Openp. 254
Weather: Sun, Rain, Snow, Moon, and the Starsp. 255
Conclusions and Final Remarksp. 256
Referencesp. 256
Size and Value Anomaliesp. 265
The Early Daysp. 265
Fama-French Three-Factor Modelp. 266
Value Anomaly: Risk or Mispricing?p. 267
Alternative Value Indicatorsp. 269
Time Variation in the Value Premiump. 270
Cross-Sectional Variation in the Value Premiump. 273
Anatomy of the Size Anomalyp. 275
International Evidencep. 278
Value Premium: Evidence from Alternative Asset Classesp. 279
Referencesp. 281
Anomaly-Based Processes for the Individual Investorp. 285
Increasing Returns Using Market Neutralp. 286
Using ETFs to Add a Market Neutral Asset to a Portfoliop. 291
Using Stock Scoring Systems to Outperform Indexesp. 292
Implementation of Anomaly-Based Quant Processesp. 296
End of the Tourp. 305
Referencesp. 305
Use of Anormaly Research by Professiona Investorsp. 307
From Academia to Wall Streetp. 307
Statistical Arbitragep. 308
High-Frequency Tradingp. 309
Multifactor Modelsp. 309
Assets in Market Neutral Portfoliosp. 310
Assets in Long Portfoliosp. 311
United States versus Internationalp. 313
Referencesp. 314
About the Contributorsp. 317
Indexp. 323
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