Evaluating the Robustness of MarketAnomaly Evidence

William D. Brown, Erin A. Moore and Ray J. Pfeiffer
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William D. Brown: Stonehill College, USA
Erin A. Moore: Lehigh University, USA
Ray J. Pfeiffer: University of Massachusetts, USA

Chapter 3 in Advances in Quantitative Analysis of Finance and Accounting, 2008, pp 27-47 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis study investigates two ways that sample selection can impact inferences about market efficiency: (1) unintentional, nonrandom exclusion of observations because of lack of available data for some firm-years (“passive deletion”); and (2) the effects of extreme return observations. The analysis proposes and illustrates a set of simple diagnostic tests designed to assess the sensitivity of estimated hedge portfolio returns to sample composition. These diagnostics are applied to the accrual anomaly and the forecast-to-price anomaly and the results indicate that the forecast-to-price anomaly is not robust to the effects of passive deletion. Moreover, extreme returns — as few as 100 firm-year observations — appear to generate the observed abnormal returns to both strategies.

Keywords: Hedging Strategies; Expense Mismatching; Stock Split; Trading Volume; Portfolio Optimization; Intraday Patterns; Earnings Management; International Winner-Loser Effect (search for similar items in EconPapers)
JEL-codes: G2 G3 (search for similar items in EconPapers)
Date: 2008
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