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Capital Market Anomalies and Quantitative Research

Author

Listed:
  • Birru, Justin

    (Ohio State University)

  • Gokkaya, Sinan

    (Ohio University)

  • Liu, Xi

    (Miami University of Ohio)

Abstract

Quantitative research analysts (Quants) produce in-depth quantitative and econometric modeling of market anomalies to assist sell-side analysts and institutional clients with stock selection strategies. Quant-backed analysts exhibit more efficient forecasting behavior on anomaly predictors--stock recommendations and target prices issued on anomaly-longs (anomaly-shorts) are more (less) favorable. Investment value of such analysts' research is higher and their research reports are more likely to discuss implications of quantitative modeling and market anomalies. Quant research facilitates "smart money" trades of institutional clients on anomaly stocks--Quant research is associated with an increased (decreased) likelihood of purchasing underpriced (overpriced) stocks. Market participants recognize Quants--thematic reports authored by Quants generate abnormal reactions for corresponding stocks. Finally, we provide evidence consistent with quantitative research increasing market efficiency by attenuating cross-sectional predictability of anomaly based long-short strategies.

Suggested Citation

  • Birru, Justin & Gokkaya, Sinan & Liu, Xi, 2018. "Capital Market Anomalies and Quantitative Research," Working Paper Series 2018-07, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2018-07
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    Citations

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    Cited by:

    1. Pungaliya, Raunaq S. & Wang, Yanbo, 2023. "Machine invasion: Automation in information acquisition and the cross-section of stock returns," Journal of Financial Markets, Elsevier, vol. 64(C).
    2. Ryan Flugum, 2021. "The trend is an analyst's friend: Analyst recommendations and market technicals," The Financial Review, Eastern Finance Association, vol. 56(2), pages 301-330, May.
    3. Guo, Li & Li, Frank Weikai & John Wei, K.C., 2020. "Security analysts and capital market anomalies," Journal of Financial Economics, Elsevier, vol. 137(1), pages 204-230.

    More about this item

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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