Confirming Anomalies

Peter Chinloy and Matthew Imes ()
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Peter Chinloy: Quant Advisors, Washington, DC, USA
Matthew Imes: Department of Finance, Stetson University, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2021, vol. 24, issue 03, 1-23

Abstract: A procedure confirms whether a return-factor correlation is anomalous or results from endogenous simultaneous-equations bias. The identification strategy sorts the cost of capital components for instruments. In the first stage, the initially found factors are regressed on cost instruments. In the second stage, a confirmed anomaly has predicted value significant in returns and exogenous.Taxes, depreciation and capital structure are strong instruments, affecting 1980–2017 quarterly U.S. stock returns. Size, value and profitability decisions are significant in instruments. Returns increase in fitted profits, but not small size. Actual and predicted values have weaker correlation with returns over time.

Keywords: Anomalies; endogeneity; size; value; profitability (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S0219091521500247

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