Decomposing anomalies

Sabri Boubaker, Bo Li, Zhenya Liu and Yifan Zhang

Economics Letters, 2021, vol. 202, issue C

Abstract: This paper introduces the functional principal component analysis approach for decomposing the panel returns of the anomaly-sorted portfolios. Using the US stock market data covering July 1963–July 2020, our findings indicate that the Fama–French (F–F) market factor can be captured by the first empirical functional principal component in the time-series. For the other F–F anomalies, market capitalization (Size), book-to-market ratio (B/M), profitability (OP), investment (Inv), and price momentum (Mom), the cross-sectional features remain in the monotonicity of the second principal component and in the curvature of the third principal component. Furthermore, a time-varying framework shows two neglected reversals of the F–F anomalies Inv and Size in the 1970s and the 1980s.

Keywords: Asset pricing; Anomaly variable; Factor model; Functional principal component analysis; Eigenfunction (search for similar items in EconPapers)
JEL-codes: C23 C51 G12 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176521001129
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:202:y:2021:i:c:s0165176521001129

DOI: 10.1016/j.econlet.2021.109835

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().