Which stocks drive the size, value, and momentum anomalies and for how long? Evidence from a statistical leverage analys
- PDF / 1,234,640 Bytes
- 43 Pages / 439.37 x 666.142 pts Page_size
- 33 Downloads / 147 Views
Which stocks drive the size, value, and momentum anomalies and for how long? Evidence from a statistical leverage analysis Kevin Aretz1 · Marc Aretz2
Published online: 5 February 2016 © The Author(s) 2016. This article is published with open access at Springerlink.com
Abstract A large number of neoclassical, behavioral, and bias-based theories try to explain the tendency of small, value, and winner stocks to outperform big, growth, and loser stocks, three well-known characteristic anomalies. Because the theories often predict similar relationships between a stock’s propensity to contribute to the anomalies and a set of correlated firm characteristics, existing studies focusing on single theories do not tell us which theory is most successful in explaining the anomalies. To fill this gap, we use a new non-parametric methodology to run a horse race between the theories. In the first step, we use statistical leverage analysis to find out which stocks are ultimately responsible for the anomalies. In the second, we use the firm characteristics suggested by the theories to forecast the identity of the anomaly drivers, with the purpose of determining which theory is most supported by the data. We find that behavioral theories are most convincing in explaining the size and book-to-market anomalies, while no theory is convincing in explaining the momentum anomaly. Keywords markets
Characteristic anomalies · Statistical leverage analysis · Efficient
JEL Classification
B
G11 · G12 · G15
Kevin Aretz [email protected] Marc Aretz [email protected]
1
Accounting and Finance Division, Manchester Business School, The University of Manchester, Crawford House, Booth Street West, Manchester M15 6PB, UK
2
Department of Economics and Finance, RWTH Aachen University, Templergraben 64, 52062 Aachen, Germany
123
20
K. Aretz, M. Aretz
1 Introduction Prior research shows that several firm characteristics explain the cross section of stock returns even when controlling for rational asset pricing factors, such as the market beta. Premier among these firm characteristics are market capitalization (“size”), the book-to-market (“BM”) ratio, and the medium-term past (“momentum”) return (Banz 1981; Rosenberg et al. 1985; Fama and French 1992; Jegadeesh and Titman 1993). Spurred by these so-called characteristic anomalies, a large number of neoclassical, behavioral, and bias-based theories have emerged over the last years trying to explain the anomalies. While each theory finds some support in empirical tests exclusively focusing on it (or on it and a restricted set of other theories), such tests do not tell us which theory is most consistent with the data. Also, given that most firm characteristics are related, such tests do not allow us to rule out that a univariate relationship between a stock’s propensity to contribute to an anomaly and a firm characteristic is driven by the effect of another firm characteristic supporting another theory. To address the above limitations, our article runs a comprehensive horse ra
Data Loading...
