Scaling up Market Anomalies

Abstract

This study investigates momentum among a host of market anomalies. Using an investment universe consisting of the 15 top (long-leg) and 15 bottom (short-leg) anomaly portfolios, the authors study an active strategy that buys (sells short) a subset of the top (bottom) anomaly portfolios based on past one-month return. The evidence shows statistically strong and economically meaningful persistence in anomaly payoffs. This strategy consistently outperforms a naive benchmark that equal weights anomalies and yields an abnormal monthly return ranging between 1.273% and 1.471%. The persistence is robust to the post-2000 period and various other considerations and is stronger following episodes of high investor sentiment.

TOPICS: Analysis of individual factors/risk premia, equity portfolio management