Why investors should not be cautious about the academic approach to testing for stock market anomalies
AbstractThe ability of investors to implement seasonal strategies implied by academic papers has been widely criticized, most recently by Hudson et al. (Applied Financial Economics, 12, 681-86, 2002). This paper addresses these concerns, and provides an example of a strategy derived from academic papers that indicates how and to what profitability such a strategy can be implemented. In particular, the pre-holiday anomaly is examined, where returns tend to be higher on the day before a holiday. After checking that the pre-holiday return compensates market frictions, the existence and the changing nature of such anomaly is tested. Finally, the profitability of the pre-holiday trading strategy in an out-of-the-sample period is assessed by checking that the pre-holiday profit is clearly different from the result an investor would obtain on a set of randomly selected days. This evidence is provided for three large stocks and an index in two different markets, Spain and Ireland.
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Financial Economics.
Volume (Year): 15 (2005)
Issue (Month): 3 ()
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Web page: http://www.tandf.co.uk/journals/routledge/09603107.html
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- David Hirshleifer & Tyler Shumway, 2003.
"Good Day Sunshine: Stock Returns and the Weather,"
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- Robert Hudson & Kevin Keasey & Kevin Littler, 2002. "Why investors should be cautious of the academic approach to testing for stock market anomalies," Applied Financial Economics, Taylor and Francis Journals, vol. 12(9), pages 681-686.
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- Auer, Benjamin R. & Rottmann, Horst, 2012.
"Is there a Friday the 13th effect in ermerging Asian stock markets?,"
35, University of Applied Sciences Amberg-Weiden (HAW).
- Benjamin R. Auer & Horst Rottmann, 2013. "Is there a Friday the 13th Effect in Emerging Asian Stock Markets?," CESifo Working Paper Series 4409, CESifo Group Munich.
- Paul McGuinness, 2005. "A re-examination of the holiday effect in stock returns: the case of Hong Kong," Applied Financial Economics, Taylor and Francis Journals, vol. 15(16), pages 1107-1123.
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