The Handbook of Equity Market Anomalies: Translating Market Inefficiencies into Effective Investment Strategies

The Handbook of Equity Market Anomalies: Translating Market Inefficiencies into Effective Investment Strategies

by Leonard Zacks
Released October 2011
Publisher(s): Wiley
ISBN: 9780470905906

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Book description

Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies

The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market.

Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies.

  • Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature

  • Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies

  • Anomalies are selected by Len Zacks, a pioneer in the field of investing

As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.

Table of contents

  1. Cover
  2. Title Page
  3. Copyright
  4. Preface
    1. Outline of the Book
    2. Can Anyone Beat the Market?
    3. What's on the Web Site?
  5. Acknowledgments
  6. Chapter 1: Conceptual Foundations of Capital Market Anomalies
    1. Efficient Markets
    2. Identifying Anomalies in Capital Markets
    3. Explaining Anomalies
    4. Anomalies: Weighing the Evidence
    5. Appendix 1.1: Risk and Expected-Return Models
  7. Chapter 2: The Accrual Anomaly
    1. What Are Accruals?
    2. Sloan (1996) in a Nutshell
    3. Extensions of Sloan (1996)
    4. Alternative Explanations for the Accrual Anomaly
    5. Practical Implications
    6. Appendix 2.1: Estimation and Testing Framework Used in Sloan (1996)
    7. Appendix 2.2: Details on the Broader Definition of Accruals
  8. Chapter 3: The Analyst Recommendation and Earnings Forecast Anomaly
    1. Role of Research Analysts
    2. Investment Recommendations
    3. Earnings Forecast Revisions
    4. Determinants of Forecast Revisions
    5. International Evidence
    6. Overview of the Investment Performance of Forecast Revisions
    7. Appendix 3.1: Details of Returns to Recommendation Strategies
  9. Chapter 4: Post-Earnings Announcement Drift and Related Anomalies
    1. The Basics of the Anomaly
    2. Measuring Earnings Surprises
    3. Sources of Post-Earnings Announcement Drift
    4. Extensions
    5. Institutional Investors
    6. Individual Investors
  10. Chapter 5: Fundamental Data Anomalies
    1. Fundamental Metrics
    2. Distress Risk
    3. Capital Investment and Growth Anomalies
    4. International Evidence
    5. Conclusion
  11. Chapter 6: Net Stock Anomalies
    1. Initial Public Offerings
    2. Seasoned Equity Offerings
    3. Debt Issuances
    4. Share Repurchases and Tender Offers
    5. Dividend Initiation and Omissions
    6. Private Equity Placement
    7. Overall Net External Financing
    8. Mergers and Acquisitions
    9. International Evidence
    10. Other Explanations for the Abnormal Returns
  12. Chapter 7: The Insider Trading Anomaly
    1. Overview of Insider Filings
    2. Documentation of the Anomaly
    3. Results for the 1978–2005 Period
    4. How Consistent Is the Anomaly Year by Year?
    5. When Are Returns Generated during the 1-Year Holding Periods?
    6. Returns in Small Cap versus Large Cap
    7. Does It Work on the Short Side?
    8. Do Returns Vary by Industry?
    9. Institutional Investors
    10. Individual Investors
    11. Relation to Other Anomalies
    12. International Evidence
    13. Can Insider Data Predict S&P 500 Returns?
    14. Latest Developments
    15. Long/Short Strategy for Institutional Investors
  13. Chapter 8: Momentum: The Technical Analysis Anomaly
    1. History of Technical Analysis and Momentum
    2. Assessing Momentum and Reversal in Stock Prices
    3. Early Influential Work on Momentum and Reversals
    4. Improving Upon Momentum Strategies
    5. Moving Averages
    6. 52-Week High/Low
    7. Momentum at Industry Levels
    8. Momentum and Mutual Funds
    9. Is Technical Analysis Profitable?
    10. Institutional Investors
    11. Explanations for Momentum and Reversals
    12. International Evidence
  14. Chapter 9: Seasonal Anomalies
    1. January Effect
    2. The January Barometer
    3. Sell-in-May-and-Go-Away
    4. Holiday Effects
    5. Day-of-the-Week Effects
    6. Seasonality Calendars
    7. Political Effects
    8. Turn-of-the-Month Effects
    9. Open/Close Daily Trade on the Open
    10. Weather: Sun, Rain, Snow, Moon, and the Stars
    11. Conclusions and Final Remarks
  15. Chapter 10: Size and Value Anomalies
    1. The Early Days
    2. Fama-French Three-Factor Model
    3. Value Anomaly: Risk or Mispricing?
    4. Alternative Value Indicators
    5. Time Variation in the Value Premium
    6. Cross-Sectional Variation in the Value Premium
    7. Anatomy of the Size Anomaly
    8. International Evidence
    9. Value Premium: Evidence from Alternative Asset Classes
  16. Chapter 11: Anomaly-Based Processes for the Individual Investor
    1. Increasing Returns Using Market Neutral
    2. Using ETFs to Add a Market Neutral Asset to a Portfolio
    3. Using Stock Scoring Systems to Outperform Indexes
    4. Implementation of Anomaly-Based Quant Processes
    5. End of the Tour
  17. Appendix: Use of Anomaly Research by Professional Investors
    1. From Academia to Wall Street
    2. Statistical Arbitrage
    3. High-Frequency Trading
    4. Multifactor Models
    5. Assets in Market Neutral Portfolios
    6. Assets in Long Portfolios
    7. United States versus International
  18. About the Contributors
    1. Daniel Cohen, PhD
    2. Patricia M. Dechow, PhD
    3. Ian Dogan, PhD
    4. Lee M. Dunham, PhD, CFA
    5. Constantine Dzhabarov
    6. Ian Gow, PhD
    7. Mozaffar Khan, PhD
    8. Natalya V. Khimich
    9. Oleg Rytchkov, PhD
    10. George Serafeim, PhD
    11. Richard G. Sloan, PhD
    12. Daniel Taylor, PhD
    13. Tzachi Zach, PhD
    14. Leonard Zacks, PhD
    15. William T. Ziemba, PhD
  19. Index

Product information

  • Title: The Handbook of Equity Market Anomalies: Translating Market Inefficiencies into Effective Investment Strategies
  • Author(s): Leonard Zacks
  • Release date: October 2011
  • Publisher(s): Wiley
  • ISBN: 9780470905906