Page 38 - FINAL CFA SLIDES DECEMBER 2018 DAY 13

LOS 46.f: Describe market Session Unit 13:
46. Market Efficiency
anomalies, p241

Anomalies in Time-Series Data:

• Calendar anomalies e.g. the January effect –during first 5 of January stock returns,
especially small stocks, much higher than rest of the year
• Overreaction and momentum anomalies –tendency for investors to overact to expected

good news and expected bad news! Momentum effects –high short-tern returns followed

by continued high returns! –challenges weak form hypothesis?

Anomalies in Cross-Sectional Data tanties

• Size effect –small cap stocks often tend to outperform large cap stocks!

• The value effect –value (lower P/E, lower M/B, higher D/Y) stocks often tend to

outperform growth (higher P/E, higher M/B, lower D/Y) stocks

Other Anomalies

• Closed-end investment funds –their shares often trade at prices that sometimes deviate

from the net asset value (NAV)
• Earnings announcements – full adjustment does not occur on these dates so profitable

strategy can be generated by either buying stocks with positive earnings surprise and

selling stocks with negative earnings surprise!

• Initial public offerings –typically under priced!