Editor's Choice Digesting Anomalies: An Investment Approach

Kewei Hou, Chen Xue and Lu Zhang ()

The Review of Financial Studies, 2015, vol. 28, issue 3, 650-705

Abstract: An empirical q-factor model consisting of the market factor, a size factor, an investment factor, and a profitability factor largely summarizes the cross section of average stock returns. A comprehensive examination of nearly 80 anomalies reveals that about one-half of the anomalies are insignificant in the broad cross section. More importantly, with a few exceptions, the q-factor model's performance is at least comparable to, and in many cases better than that of the Fama-French (1993) 3-factor model and the Carhart (1997) 4-factor model in capturing the remaining significant anomalies.

Date: 2015
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The Review of Financial Studies is currently edited by Itay Goldstein

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