How Efficiently Does the Stock Market Process News of Price Anomalies?

Abstract

If an investable anomaly is discovered and awareness of it spreads, one would expect market forces to bid it out of existence in the long run. In this article, the authors test whether this has happened with the relative value anomaly. This approach to value investing was introduced over 25 years ago and was shown to offer superior risk-adjusted returns. Its outperformance has been well documented in academic and professional journals as well as general interest publications. Has this broad market knowledge of the relative value anomaly diminished the opportunity it holds for investors? The authors examine its performance over time to find out.