Investing in Stock Market Anomalies

52 Pages Posted: 10 Apr 2011

See all articles by Turan G. Bali

Turan G. Bali

Georgetown University - McDonough School of Business

Stephen J. Brown

New York University - Stern School of Business

K. Ozgur Demirtas

Sabanci University Graduate School of Management

Multiple version iconThere are 3 versions of this paper

Date Written: April 9, 2011

Abstract

This paper provides an explanation of investing in stock market anomalies in an expected utility paradigm. Classical selection rules fail to provide a preference for high expected return portfolios. The paper utilizes the almost dominance rules to examine the practice of investing in size, book-to-market, momentum, short-term and long-term reversal anomalies. The results indicate that popular investment choices such as value and small stocks do not dominate growth and big stocks. However, the short-term reversal and momentum strategies create efficient investment alternatives. Bilateral comparisons of stock market anomalies provide evidence for the superior performance of size, short-term reversal, and momentum for 1-month to 12-month horizon and book-to-market and long-term reversal for longer term horizons of 3 to 5 years. The relative strength of small, value, momentum-winner, short-term and long-term losers becomes more prevalent when the time-varying conditional distributions are examined.

Keywords: Stock Market Anomalies, Momentum, Reversal, Size, Value Premium

JEL Classification: G10, G11, G12

Suggested Citation

Bali, Turan G. and Brown, Stephen J. and Demirtas, K. Ozgur, Investing in Stock Market Anomalies (April 9, 2011). Available at SSRN: https://ssrn.com/abstract=1806137 or http://dx.doi.org/10.2139/ssrn.1806137

Turan G. Bali (Contact Author)

Georgetown University - McDonough School of Business ( email )

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Stephen J. Brown

New York University - Stern School of Business ( email )

Stern School of Business
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United States
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212-995-4233 (Fax)

K. Ozgur Demirtas

Sabanci University Graduate School of Management ( email )

Sabanci University, School of Management
Orhanli Tuzla
Orhanlı-Tuzla, Istanbul, 34956
Turkey
(+90) 216-483-9985 (Phone)
(+90) 216-483-9699 (Fax)

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