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Full-Text Articles in Business

Anomaly Discovery And Arbitrage Trading, Xi Dong, Qi Liu, Lei Lu, Bo Sun, Hongjun Yan Sep 2018

Anomaly Discovery And Arbitrage Trading, Xi Dong, Qi Liu, Lei Lu, Bo Sun, Hongjun Yan

Publications – Dreihaus College of Business

Our model of anomaly discovery has implications for both asset prices and arbitrageurs' trading. Consistent with existing evidence, the discovery of an anomaly reduces its magnitude. Our evidence based on 99 anomalies is consistent with new predictions that the discovery of an anomaly reduces the correlation between the returns its deciles 1 and 10, leading to diversification benefits for passive investors. These effects become linked to the aggregate trading of hedge funds only after discovery. Hedge funds increase (reverse) their positions in exploiting anomalies when their aggregate wealth increases (decreases), further suggesting that these discovery effects operate through arbitrage trading.


Is The Accruals Anomaly More Persistent In Firms With Weak Internal Controls?, Kanishk Kapur Jan 2018

Is The Accruals Anomaly More Persistent In Firms With Weak Internal Controls?, Kanishk Kapur

CMC Senior Theses

In 1996, Sloan identified the accruals anomaly, in which the negative relationship between the accruals component of current earnings and subsequent stock returns can be exploited to generate excess returns. One would expect the accruals anomaly to dissipate and ultimately disappear as investors take advantage of the now-public information. However, nearly two decades later, it persists as one of the most prominent and contentious anomalies; its magnitude of current and future excess returns still remain controversial. The main reason for its persistence is that extreme accrual firms possess characteristics that are unappealing to most investors. These characteristics, which include insufficient …