The Handbook of Equity Market Anomalies

Investment pioneer Len Zacks presents the latest academic
research on how to beat the market using equity anomalies

The Handbook of Equity Market Anomalies organizes and
summarizes research carried out by hundreds of finance and
accounting professors over the last twenty years to identify and
measure equity market inefficiencies and provides self-directed
individual investors with a framework for incorporating the results
of this research into their own investment processes. Edited by Len
Zacks, CEO of Zacks Investment Research, and written by leading
professors who have performed groundbreaking research on specific
anomalies, this book succinctly summarizes the most important
anomalies that savvy investors have used for decades to beat the
market.

Some of the anomalies addressed include the accrual anomaly, net
stock anomalies, fundamental anomalies, estimate revisions, changes
in and levels of broker recommendations, earnings-per-share
surprises, insider trading, price momentum and technical analysis,
value and size anomalies, and several seasonal anomalies. This
reliable resource also provides insights on how to best use the
various anomalies in both market neutral and in long investor
portfolios. A treasure trove of investment research and wisdom, the
book will save you literally thousands of hours by distilling the
essence of twenty years of academic research into eleven clear
chapters and providing the framework and conviction to develop
market-beating strategies.

• Strips the academic jargon from the research and highlights the
  actual returns generated by the anomalies, and documented in the
  academic literature

• Provides a theoretical framework within which to understand the
  concepts of risk adjusted returns and market inefficiencies

• Anomalies are selected by Len Zacks, a pioneer in the field of
  investing

As the founder of Zacks Investment Research, Len Zacks pioneered
the concept of the earnings-per-share surprise in 1982 and
developed the Zacks Rank, one of the first anomaly-based stock
selection tools. Today, his firm manages U.S. equities for
individual and institutional investors and provides investment
software and investment data to all types of investors. Now, with
his new book, he shows you what it takes to build a quant process
to outperform an index based on academically documented market
inefficiencies and anomalies.

Auteur

LEONARD ZACKS has been Chairman and CEO of Zacks Investment Research since 1978. Prior to that, he held several positions with A.G. Becker, a Chicago-based brokerage firm, including investment analyst, assistant to the president, and product development manager. Zacks was an associate at McKinsey & Company in New York and an analyst at the Rand Corporation in California. He holds a PhD in operations research from the Massachusetts Institute of Technology.

Résumé
Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market.

Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies.

• Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature
• Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies
• Anomalies are selected by Len Zacks, a pioneer in the field of investing
  As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.

Contenu

Preface xi

Acknowledgments xvii

CHAPTER 1 Conceptual Foundations of Capital **Market Anomalies 1
**Mozaffar Khan

Efficient Markets 2

Identifying Anomalies in Capital Markets 3

Explaining Anomalies 5

Anomalies: Weighing the Evidence 10

Appendix 1.1: Risk and Expected-Return Models 10

References 17

CHAPTER 2 **The Accrual Anomaly 23
**Patricia M. Dechow, Natalya V. Khimich, and Richard G. Sloan

What Are Accruals? 24

Sloan (1996) in a Nutshell 32

Extensions of Sloan (1996) 38

Alternative Explanations for the Accrual Anomaly 45

Practical Implications 51

Appendix 2.1: Estimation and Testing Framework Used in Sloan (1996) 52

Appendix 2.2: Details on the Broader Definition of Accruals 54

References 59

CHAPTER 3 **The Analyst Recommendation and Earnings Forecast Anomaly 63
**George Serafeim

Role of Research Analysts 63

Investment Recommendations 64

Earnings Forecast Revisions 73

Determinants of Forecast Revisions 76

International Evidence 78

Overview of the Investment Performance of

Forecast Revisions 79

Appendix 3.1: Details of Returns to

Recommendation Strategies 79

References 87

CHAPTER 4 **Post-Earnings Announcement Drift and Related Anomalies 91
**Daniel Taylor

The Basics of the Anomaly 92

Measuring Earnings Surprises 99

Sources of Post-Earnings Announcement Drift 102

Extensions 106

Institutional Investors 108

Individual Investors 110

References 112

CHAPTER 5 **Fundamental Data Anomalies 117
**Ian Gow

Fundamental Metrics 118

Distress Risk 122

Capital Investment and Growth Anomalies 123

International Evidence 125

Conclusion 126

References 126

CHAPTER 6 **Net Stock Anomalies 129
**Daniel Cohen, Thomas Lys, and Tzachi Zach

Initial Public Offerings 130

Seasoned Equity Offerings 132

Debt Issuances 133

Share Repurchases and Tender Offers 134

Dividend Initiation and Omissions 136

Private Equity Placement 138

Overall Net External Financing 138

Mergers and Acquisitions 141

International Evidence 142

Other Explanations for the Abnormal Returns 143

References 144

CHAPTER 7 **The Insider Trading Anomaly 147
**Ian Dogan

Overview of Insider Filings 148

Documentation of the Anomaly 148

Results for the 19782005 Period 150

How Consistent Is the Anomaly Year by Year? 152

When Are Returns Generated during the 1-Year Holding Periods? 154

Returns in Small Cap versus Large Cap 155

Does …