Time‐varying group common factors in the stock market anomalies

This study investigates group common factors within six anomaly groups using a factor model with time‐varying coefficients and stochastic volatility. We explore the time‐varying relative contributions of group common factors in explaining the variation of each anomaly's return. We demonstrate that the relative importance is heterogeneous across the anomaly groups. The relative importance of the value group common factor decreased during the global financial crisis (GFC) and the COVID‐19 pandemic in 2020 because the GFC and the pandemic were associated with cash flow and earnings. Moreover, we reveal that business cycles have heterogeneous impacts on the group common factors.