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Anomalies in Stock Market Pricing: Problems in Return Measurements

Author

Listed:
  • Wentworth Boynton

    (University of New Haven)

  • Henry R. Oppenheimer

    (University of Rhode Island)

Abstract

We study four asset pricing anomalies: market size, contrarian, momentum, and book-to-market premia. We first control for two biases. We control for delisting effects, which create a survivorship bias. We then control for microstructure distortions from the bid-ask spread bounce, which upwardly biases returns when the bid-ask spreads are large. We find that these two biases account for a substantial portion of the market size, contrarian, and book-to-market anomalies. While these bias effects are substantial, they do not invalidate the anomalies. Controlling for bias, the momentum premium strengthens.

Suggested Citation

  • Wentworth Boynton & Henry R. Oppenheimer, 2006. "Anomalies in Stock Market Pricing: Problems in Return Measurements," The Journal of Business, University of Chicago Press, vol. 79(5), pages 2617-2632, September.
    • Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:5:p:2617-2632
    DOI: 10.1086/505246
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    Cited by:

    1. Wentworth Boynton & Steven Jordan, 2006. "Will the Smart Institutional Investor Always Drive Prices to Fundamental Value?," Yale School of Management Working Papers amz2357, Yale School of Management, revised 19 Nov 2006.
    2. Martin Rohleder & Hendrik Scholz & Marco Wilkens, 2010. "Survivorship Bias and Mutual Fund Performance: Relevance, Significance, and Methodical Differences," Review of Finance, European Finance Association, vol. 15(2), pages 441-474.
    3. Kobana Abukari & Isaac Otchere, 2020. "Dominance of hybrid contratum strategies over momentum and contrarian strategies: half a century of evidence," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(4), pages 471-505, December.

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