Question

(6) Select market 'anomalies' and briefly explain them. How are they useful in terms of devising a trading/investment strategy?

Hints:

- Market anomalies that affect the aggregate market as well as portfolio/firm-specific characteristics (such as size) which have been motivations for the Fama-French 3-factor model.

- Discuss why we see these anomalies and if their presence can be justified from the perspective of the efficient market hypothesis.

Answer 1

In the non-contributing world, an anomaly is an abnormal or bizarre event. In monetary markets, anomalies allude to circumstances when a security or gathering of protections performs in opposition to the thought of productive markets, where security costs are said to mirror all accessible data anytime.

With the consistent discharge and fast spread of new data, once in a while productive markets are difficult to accomplish and considerably increasingly hard to keep up. There are many market anomalies; some happen once and vanish, while others are constantly watched.

Anomalies that are connected to a specific time are called calender effects. The absolute most famous calender effects incorporate the end of the week impact, the turn-of-the-month impact, the turn-of-the-year impact and the January impact.

End of the week Impact: The weekend impact depicts the inclination of stock costs to diminish on Mondays, implying that end costs on Monday are lower than shutting costs on the past Friday. For some obscure explanation, returns on Mondays have been reliably lower than each other day of the week. Truth be told, Monday is the main weekday with a negative normal pace of return.

Turn-of-the-Month Impact: The turn-of-the-month impact alludes to the propensity of stock costs to ascend on the last exchanging day of the month and the initial three exchanging days of the following month.

Turn-of-the-Year Impact: The turn-of-the-year impact portrays an example of expanded exchanging volume and higher stock costs the most recent seven day stretch of December and the initial two weeks of January.

January Impact: In the midst of the turn-of-the-year advertise positive thinking, there is one class of protections that reliably beats the rest. Little organization stocks outflank the market and other resource classes during the initial half a month of January. This marvel is alluded to as the January impact.

All these anomalies help an investor in deciding whether or not to invest at a particular time of the year or not, hence they play an important part in the investing decision.