The correlation structure of anomaly strategies

Abstract We consolidate a large number of mean-significant anomalies into cluster portfolios. More than a third of cluster portfolios remain significant under the Hou et al. (2020) five-factor model — the best performing among six benchmark models tested. A best-first search yields nine factors that subsume all cluster portfolios as well as all significant anomalies, demonstrating the feasibility of a parsimonious description of average realised returns. The expected growth factor (EG) and a cluster portfolio linked to accruals are prominent factors that improve pricing performance. The search-generated model produces a monthly maximum squared Sharpe ratio of 0.51, considerably higher than current benchmark models.

• Publication year

  2020

• Venue

  Journal of Banking & Finance

• Publication date

  2020-10-01

• Fields of study

  Mathematics, Business, Economics

• Identifiers
  DOI 10.1016/J.JBANKFIN.2020.105934
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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