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As noted in prior chapters, many researchers have found that some anomalies or factors have occurred largely during the month of January, or during the turn of the month. Marc Reinganum (considered the founding father of stock market anomalies) found that January accounted for nearly half of the total returns for the smallest cap stocks, but less than that for other small-cap stocks.1 In the 1980s Bruce Jacobs and Ken Levy found that a large percentage of the returns between large and small companies occurred in the month of January. Additionally, half of the January returns occur in the first few days of January. Some researchers refer to this as the "small-firm-in-January" effect. Jacobs and Levy also found that during some periods, the entire dividend effect occurred in January and that the Low P/E, small size, and neglect anomalies all existed independently.2
A relatively recent study on interrelationships of factors was by Malcolm Baker, Ryan Taliaferro, and Terence Burnham. They computed optimal allocations to four tilts using 1968–2014 data, with value, small size, high profits, and low beta receiving shares of 20%, 26%, 23%, and 24% respectively.3 ...
The Value Line Anomaly & Implementation Shortfall
Value Line is a service that historically ranks stocks from 1 to 5 for timeliness. As a group, each rating has historically outperformed the next lowest rated group (the ones have outperformed the twos, which outperformed the threes, etc.). The impressive performance of the rating system led many to refer to it as the "Value Line Anomaly" or the "Value Line Enigma." ...
Chapter 24 Notes - The Footnotes in the Book are sequential and for this chapter start at #462 and end at #470.
These notes are provided for those that have purchased the book and would like to access the notes and links directly.
1. Marc R. Reinganum, "The Size Effect: Evidence and Potential Explanations," Investing in Small-Cap and Microcap Securities, Association for Investment Management and Research, 1997.
2. Bruce I. Jacobs and Kenneth N. Levy, CFA, "Disentangling Equity Market Returns," Equity Markets and Valuation Methods, The Institute of Chartered Financial Analysts, 1987.
3. Malcolm Baker, Ryan Taliaferro, and Terence Burnham Optimal Tilts: Combining Persistent Characteristic Portfolios Financial Analysts Journal Fourth Quarter 2017 https://www.cfapubs.org/doi/pdf/10.2469/faj.v73.n4.1
4. Timotheos Angelidis and Nikolaos Tessaromatis, Global Equity Country Allocation: An Application of Factor Investing, Financial Analysts Journal, Fourth Quarter 2017 https://www.cfapubs.org/doi/pdf/10.2469/faj.v73.n4.7
5. Campbell Harvey, Yan Liu, and Heqing Zhu "... and the Cross-Section of Expected Returns", Review of Financial Studies, January 2016 https://faculty.fuqua.duke.edu/~charvey/Research/Published_Papers/P118_and_the_cross.PDF
6. Sina Ehsani and Juhani Linnainmaa, Factor Momentum and the Momentum Factor, 2019 https://www.nber.org/papers/w25551 or https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3014521
7. R. David Mclean, Jeffrey Pointiff, Does Academic Research Destroy Stock Return Predictability? February 2016 Journal of Finance http://onlinelibrary.wiley.com/doi/10.1111/jofi.12365/full
8. Feifei Li, Tzee-Man Chow, Alex Pickard, and Yadwinder Garg, Transaction Costs of Factor-Investing Strategies, Financial Analysts Journal, Second Quarter 2019 https://www.cfainstitute.org/en/research/financial-analysts-journal/2019/0015198X-2019-1567190
9. David Leinweber, “Using Information From Trading in Trading Portfolio Management," The Journal of Investing, Summer 1995
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