Anomalies and Market Efficiency

Chapter 15

Handbook of the Economics of Finance
eds. George Constantinides, Milton Harris, and René Stulz, North-Holland (2003) 937-972.

G. William Schwert

University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research

Anomalies are empirical results that seem to be inconsistent with maintained theories of asset pricing behavior. They indicate either market inefficiency (profit opportunities) or inadequacies in the asset-pricing model. Often, after the academic literature documents and analyzes anomalies, they seem to disappear, reverse, or attenuate. This raises the question of whether profit opportunities existed in the past, but have since been arbitraged away, or alternatively, they were statistical aberrations that attracted the attention of academics and practioners.

Key words: Anomalies, asset-pricing models, market efficiency, arbitrage

JEL Classifications: G14, G12

Cited 307 times in the SSCI through 2020
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