R. David McLean
University of Alberta – Department of Finance and Management Science
Boston College – Department of Finance
October 3, 2012
We study the out-of-sample and post-publication return-predictability of 82 characteristics that are identified in the academic literature. The average out-of-sample decay due to statistical bias is about 10%, but not statistically different from zero. The average post-publication decay, which we attribute to both statistical bias and price pressure from aware investors, is about 35%, and statistically different from both 0% and 100%. Consistent with informed trading, after publication, stocks in anomaly portfolios experience higher volume, variance, and short interest, and higher correlations with portfolios that are based on published anomalies. Consistent with costly (limited) arbitrage, the post-publication return decline is greater for anomaly portfolios that consist of stocks that are large, liquid, have high dividend yields, and have low idiosyncratic risk.
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