Thursday, September 01, 2005

Seasonal, Size and Value Anomalies by Ben Jacobsen, Abdullah Mamun, Nuttawat Visaltanachoti

SSRN-Seasonal, Size and Value Anomalies by Ben Jacobsen, Abdullah Mamun, Nuttawat Visaltanachoti: "

Uh, oh. Here is one that will cause my notes to be redone!

Jacobsen, Mamum, and Visaltanchoti use the Fama-French data library to look at three types of anomalies. Their findings may surprise you!

The anomalies are broken down into three categories:
  1. Seasonal--the Halloween Effect (that is that stocks do better from November to April) and the January Effect.
  2. Value--The Book to Market anomaly and the Earnings to Price anomaly.
  3. Size Effect-the small firm effect
The authors use a "time series of (log) portfolio returns starting with the random walk model and then include a January dummy, a Halloween dummy, or both, to study the interaction between these effects and the different portfolio returns." (See equation 1)

The findings?

1. Returns appear lower in the summer (thus the so-called Halloween effect is supported) :
  • "excess returns on almost all portfolios are during summer not significantly different from zero and negative in approximately half of all portfolios. This confirms the finding of Bouman and Jacobsen (2002) for international results also for the US: excess returns in the US on many portfolios are close to zero and often negative during summer months."
2. Value anomalies appear to be largely year-round phenomena
  • "Size effect and the well known value effects, like Book to Market, Earnings to Price,
    Cash Flow to Price and Dividend to Price effects are not affected by the Halloween
    effect. These anomalies persist in summer and winter."
3. The size effect appears to be dependent on the measure of comparison and disappears (or even reverses sign!) when the January effect is controlled for!
  • "After controlling for a January effect we find no evidence of a size effect in equally weighted portfolios and a reversed size or, in other words, a ‘large firm effectÂ’ in value weighted portfolios."
Which deserves a WOW! I told you I would have to edit my notes!

Jacobsen, Ben NMI1, Mamun, Abdullah and Visaltanachoti, Nuttawat, "Seasonal, Size and Value Anomalies" (August 2005).

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