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Editor's Choice Digesting Anomalies: An Investment Approach

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  • Kewei Hou
  • Chen Xue
  • Lu Zhang

Abstract

An empirical q-factor model consisting of the market factor, a size factor, an investment factor, and a profitability factor largely summarizes the cross section of average stock returns. A comprehensive examination of nearly 80 anomalies reveals that about one-half of the anomalies are insignificant in the broad cross section. More importantly, with a few exceptions, the q-factor model's performance is at least comparable to, and in many cases better than that of the Fama-French (1993) 3-factor model and the Carhart (1997) 4-factor model in capturing the remaining significant anomalies.

Suggested Citation

  • Kewei Hou & Chen Xue & Lu Zhang, 2015. "Editor's Choice Digesting Anomalies: An Investment Approach," Review of Financial Studies, Society for Financial Studies, vol. 28(3), pages 650-705.
  • Handle: RePEc:oup:rfinst:v:28:y:2015:i:3:p:650-705.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhu068
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