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Share. Resize. Reprints. Stock market volatility is back, continuing a longer term trend toward wilder swings in prices. The good news is that the market still seems likely to produce strong...
- Jacob Sonenshine
- Small Firms Tend to Outperform
- January Effect
- Low Book Value
- Neglected Stocks
- Reversals
- Days of The Week
- Dogs of The Dow
- The Bottom Line
Smaller firms (that is, smaller capitalization) tend to outperform larger companies. As anomalies go, the small-firm effectmakes sense. A company's economic growth is ultimately the driving force behind its stock performance, and smaller companies have much longer runways for growth than larger companies. A company like Microsoft (MSFT) might need ...
The January effect is a rather well-known anomaly. Here, the idea is that stocks that underperformed in the fourth quarter of the prior year tend to outperform the markets in January. The reason for the January effect is so logical that it is almost hard to call it an anomaly. Investors will often look to jettison underperforming stocks late in the...
Extensive academic research has shown that stocks with below-average price-to-book ratios tend to outperform the market. Numerous test portfolios have shown that buying a collection of stocks with low price/book ratios will deliver market-beating performance. Although this anomaly makes sense to a point—unusually cheap stocksshould attract buyers' ...
A close cousin of the "small-firm anomaly," so-called neglected stocks are also thought to outperform the broad market averages. The neglected-firm effect occurs on stocks that are less liquid (lower trading volume) and tend to have minimal analyst support. The idea here is that as these companies are "discovered" by investors, the stocks will outp...
Some evidence suggests that stocks at either end of the performance spectrum, over periods of time (generally a year), do tend to reverse course in the following period—yesterday's top performers become tomorrow's underperformers, and vice versa. Not only does statistical evidence back this up, but the anomaly also makes sense according to investme...
Efficient market supportershate the "days of the week" anomaly because it not only appears to be true, but it also makes no sense. Research has shown that stocks tend to move more on Fridays than Mondays and that there is a bias toward positive market performance on Fridays. It is not a huge discrepancy, but it is a persistent one. On a fundamental...
The Dogs of the Dow are included as an example of the dangers of trading anomalies. The idea behind this theory was basically that investors could beat the market by selecting stocks in the Dow Jones Industrial Averagethat had certain value attributes. Investors practiced different versions of the approach, but there were two common approaches. The...
Attempting to trade anomalies is a risky way to invest. Many anomalies are not even real in the first place, but they are also unpredictable. What's more, they are often a product of large-scale data analysis that looks at portfolios consisting of hundreds of stocks that deliver just a fractional performance advantage. Likewise, it would seem to ma...
Dec 4, 2021 · There are enough warning signs coming from the stock market and a full-fledged correction cannot be far away. Let us examine these warning signs and what they mean for retail investors.
- Narendra Nathan
May 7, 2024 · A stock with a price that fluctuates wildly—hits new highs and lows or moves erratically—is considered highly volatile. A stock that maintains a relatively stable price has low volatility. A...
- Claire Boyte-White
- 3 min
Feb 2, 2022 · The inelastic markets hypothesis from Harvard’s Xavier Gabaix and Chicago Booth’s Ralph S. J. Koijen argues that fund flows have an important effect on asset prices. Fund flows can also affect bond yields—and may explain part of the EU debt crisis in Southern Europe, research suggests. Read more.
Jul 1, 2015 · A stock that trades erratically, either on a daily chart or weekly chart, is telling a story, and it's not a compelling one. It's a story of uncertainty, indecision...
Jul 1, 2006 · The irrational component of your stock price. Ideally, if managers understand what is happening when short-term share prices are off, they will be more likely to stick to their long-term strategic plans.
