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What Useful Alphas?

Author

Listed:
  • Andrew Y. Chen
  • Ivo Welch

Abstract

This paper examines about 200 published long-short anomaly equity portfolios (Chen and Zimmermann, 2022). Over the period through 2005 (December 2005 and earlier) and across all stocks, their median zero-investment return was an impressive 48 bp per month. Using only post-2005 years (January 2006 onward) reduces this to 19 bp. Using only "non-micro" top-3,000 stocks in the top 90% of market capitalization reduces this to 26 bp. Using only post-2005 and non-micro stocks reduces this to 7 bp. Even modest allowances for luck or transaction costs would have eliminated even these 7 bp. The evidence strongly suggests that published academic anomalies have been useless to non-micro-cap portfolio managers in the 21st century. Public stock markets were very efficient.

Suggested Citation

  • Andrew Y. Chen & Ivo Welch, 2026. "What Useful Alphas?," Papers 2607.06502, arXiv.org.
    • Handle: RePEc:arx:papers:2607.06502
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    References listed on IDEAS

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    1. Chen, Andrew Y. & Velikov, Mihail, 2023. "Zeroing In on the Expected Returns of Anomalies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 58(3), pages 968-1004, May.
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