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Interacting Anomalies

Author

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  • Karsten Müller
  • Simon N M Schmickler

Abstract

An extensive literature studies interactions of stock market anomalies using double-sorted portfolios. But given hundreds of known candidate anomalies, examining selected interactions is subject to a data mining critique. In this paper, we conduct a comprehensive analysis of all possible double-sorted portfolios constructed from 102 underlying anomalies. We find hundreds of statistically significant anomaly interactions, even after accounting for multiple hypothesis testing. An out-of-sample trading strategy that invests in the top backward-looking double-sort strategy generates equal-weighted (value-weighted) monthly average returns of 4% (2.7%) at an annualized Sharpe ratio of 2 (1.38), on par with state-of-the-art anomaly-based machine learning strategies.

Suggested Citation

  • Karsten Müller & Simon N M Schmickler, 2025. "Interacting Anomalies," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 15(2), pages 162-216.
    • Handle: RePEc:oup:rasset:v:15:y:2025:i:2:p:162-216.
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    File URL: http://hdl.handle.net/10.1093/rapstu/raaf001
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    More about this item

    Keywords

    G11; G12;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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