Value And Momentum And Investment Anomalies

  1. Net stock issues: Net stock issuance and stock returns are negatively correlated. It’s been shown that smart managers issue shares when sentiment-driven traders push prices to overvalued levels.
  2. Composite equity issues: Issuers underperform non-issuers, with “composite equity issuance” defined as the growth in the firm’s total market value of equity minus the stock’s rate of return. It’s computed by subtracting the 12-month cumulative stock return from the 12-month growth in equity market capitalization.
  3. Accruals: Firms with high accruals earn abnormally lower average returns than firms with low accruals. Investors overestimate the persistence of the accrual component of earnings when forming earnings expectations.
  4. Net operating assets: The difference on a firm’s balance sheet between all operating assets and all operating liabilities, scaled by total assets, is a strong negative predictor of long-run stock returns. Investors tend to focus on accounting profitability, neglecting information about cash profitability, in which case net operating assets (equivalently measured as the cumulative difference between operating income and free cash flow) capture such a bias.
  5. Asset growth: Companies with high growth rates in their total assets earn lower subsequent returns. Investors overreact to changes in future business prospects implied by asset expansions.
  6. Post-earnings announcement drift: If earnings surprises are positive (negative), future stock prices drift upward (downward) — stock prices drift in the same direction as the earnings surprise.
  7. Investment-to-assets: Higher past investment predicts abnormally lower future returns.
  8. O-score: This is an accounting measure of the likelihood of bankruptcy. Firms with higher O-scores have lower returns.
  9. Momentum: High (low) recent (in the past year) past returns forecast high (low) future returns over the next several months.
  10. Gross profitability premium: More-profitable firms have higher returns than less-profitable firms.
  11. Return on assets: More-profitable firms have higher expected returns than less-profitable firms.
  12. Size: Smaller firms have higher expected returns than larger ones.
  13. Value (book-to-market): High book-to-market (value) firms have higher expected returns than low book-to-market (growth) firms.
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Disclosure: Performance figures contained herein are hypothetical, unaudited and prepared by Alpha Architect, LLC; hypothetical results are intended for illustrative purposes only. Past ...

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