What Useful Alphas?

Andrew Y. Chen and Ivo Welch

Papers from arXiv.org

Abstract: This paper examines about 200 published long-short anomaly equity portfolios (Chen and Zimmermann, 2022). Over the period through 2005 (December 2005 and earlier) and across all stocks, their median zero-investment return was an impressive 48 bp per month. Using only post-2005 years (January 2006 onward) reduces this to 19 bp. Using only "non-micro" top-3,000 stocks in the top 90% of market capitalization reduces this to 26 bp. Using only post-2005 and non-micro stocks reduces this to 7 bp. Even modest allowances for luck or transaction costs would have eliminated even these 7 bp. The evidence strongly suggests that published academic anomalies have been useless to non-micro-cap portfolio managers in the 21st century. Public stock markets were very efficient.

Date: 2026-07
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