Financial Anomalies in Portfolio Construction and Management

TL;DR: In this paper, the authors test a large set in US and non-US markets over the past 25 years and report that many of these fundamentals, earnings forecasts, revisions, and breadth and momentum strategies maintained their statistical significance during 1996-2020 time period.

Abstract: Financial anomalies have been studied in the United States. Recent evidence suggests that financial anomalies have diminished in the United States and possibly in non-US portfolios. Have the anomalies changed, or are they persistent? Have historical and earnings forecasting data been a consistent, and highly statistically significant, source of excess returns? The authors test many financial anomalies of the 1980s and 1990s and report that several models and strategies continue to produce statistically significant excess returns. The authors test a large set in US and non-US markets over the past 25 years. They report that many of these fundamentals, earnings forecasts, revisions, and breadth and momentum strategies maintained their statistical significance during the 1996–2020 time period. Moreover, the earnings forecasting model and robust regression estimated composite model excess returns are greater in non-US and global markets than in US markets. TOPICS:Security analysis and valuation, global markets, statistical methods, performance measurement Key Findings ▪ The authors verify the continuity of financial anomalies in the post-publication period. ▪ The authors use composite modeling methodology to estimate expected returns. ▪ The authors use robust regression to address the outliers and issues in the data.