Trends in the Cross-Section of Stock Returns
Abstract
Many popular return anomalies have materially diminished in strength and significance in recent years and this decline is related to the overall increase in trading activity. Liquid stocks exhibit little of the well-known cross-sectional effects such as firm size, book-to-market ratio, momentum, accruals, new issues, idiosyncratic volatility, and the post-earnings-announcement-drift. We provide causal evidence that it is arbitrage activity as proxied by hedge fund assets under management, short interest, and the decline in trading costs that has led to the decline in the anomaly based trading strategy profits in recent years.
This event is an Erasmus Finance Seminar. The Erasmus Finance Seminar series brings prominent researchers in Finance from all over the world to Rotterdam.
