Highly interesting. And do you think these anomalies can actually be put to good use? Are there any underlying studies? After all, the financial market is so big that there is someone behind every anomaly who derives key figures from it in order to arbitrage them. Or does the problem lie in systematically distinguishing structural revisions from overshooting effects?
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@SchlaubiSchlumpf Good thoughts, Uwe.
The PEAD effect has been documented since the 1960s, Bernard & Thomas (1989) is the classic reference. And you're right: the better known an anomaly is, the more capital tries to arbitrage it away. For large caps, the effect is much weaker today than in the original studies, which is hardly surprising. In my opinion, it holds up better for less observed stocks, which also makes sense in theory: Where arbitrage is more expensive, anomalies disappear more slowly.
The really difficult question is the one you ask at the end. Whether you are in phase two of a structural cycle or at the end of a cyclical overshoot cannot be resolved by any screening I know of.
It's a matter of judgment, and that's exactly why the effect doesn't disappear completely.
The PEAD effect has been documented since the 1960s, Bernard & Thomas (1989) is the classic reference. And you're right: the better known an anomaly is, the more capital tries to arbitrage it away. For large caps, the effect is much weaker today than in the original studies, which is hardly surprising. In my opinion, it holds up better for less observed stocks, which also makes sense in theory: Where arbitrage is more expensive, anomalies disappear more slowly.
The really difficult question is the one you ask at the end. Whether you are in phase two of a structural cycle or at the end of a cyclical overshoot cannot be resolved by any screening I know of.
It's a matter of judgment, and that's exactly why the effect doesn't disappear completely.
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@Liebesspieler makes sense in any case. If I have a 4% spread, I can't arbitrage for 3%. At most, you could call it a favorable entry.
With NVIDIA in your example, I would also have gone short. I even bet on falling prices just for fun. I also undercut this effect, so to speak. I think that's the problem. As you said, the effect is strongly decoupled from company figures. You can almost guess which phase you're in.
I think I'm happy in B&H 😂
With NVIDIA in your example, I would also have gone short. I even bet on falling prices just for fun. I also undercut this effect, so to speak. I think that's the problem. As you said, the effect is strongly decoupled from company figures. You can almost guess which phase you're in.
I think I'm happy in B&H 😂
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@SchlaubiSchlumpf Smurf again, you can't smurf everything together! Sometimes the Smurfs smurf up!
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