Explaining Anomalies (joint with Leon Kowalke and Marcel Prokopczuk)

More than three-fifths of anomaly premia can be explained by a small set of proxy variables that capture key economic concepts. Using a decomposition approach that incorporates both the cross-sectional and time-series dimensions of potential explanations, we analyze the return premia of a broad set of prominent anomalies in the cross-section of stock returns. The main drivers of anomalies are mispricing, distress, trading costs, and limits to arbitrage. Accruals, debt issuance, investment, low-risk, and value anomalies are explained relatively well, whereas profit growth, profitability, seasonality, and short-term reversal anomalies are accounted for only to a limited extent.

Prof. Dr. Oscar Stolper /Philipps University of Marburg