Market anomaly
Encyclopedia
A market anomaly is a price
and/or return
distortion on a financial market that seems to contradict the efficient market hypothesis
.
The market anomaly usually relates to:
There are anomalies in relation to the economic fundamentals of the equity, technical trading rules, and economic calendar
events.
Anomalies could be fundamental, technical, or calendar related. Fundamental anomalies include value effect and small-cap effect (low P/E stocks and small cap companies do better than index on an average). Calendar anomalies involve patterns in stock returns from year to year or month to month, while technical anomalies include momentum
effect.
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
and/or return
Return
-In business, economics, and finance:* Rate of return, the financial term for the profit or loss derived from an investment* Tax return , various meanings relating to taxation...
distortion on a financial market that seems to contradict the efficient market hypothesis
Efficient market hypothesis
In finance, the efficient-market hypothesis asserts that financial markets are "informationally efficient". That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.There are...
.
The market anomaly usually relates to:
- Structural factors, such as unfair competitionUnfair competitionUnfair competition in a sense means that the competitors compete on unequal terms, because favourable or disadvantageous conditions are applied to some competitors but not to others; or that the actions of some competitors actively harm the position of others with respect to their ability to...
, lack of market transparency, regulatory actionsRegulationRegulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
, etc. - Behavioral biases by economic agents (see behavioral economics)
There are anomalies in relation to the economic fundamentals of the equity, technical trading rules, and economic calendar
Economic calendar
Economic calendars calendar inform financiers and traders about scheduled major economic indicator releases , government reports and speeches of influential persons of the financial world. Economic calendars are usually issued on an weekly basis and updated in real time.-External links:****...
events.
Anomalies could be fundamental, technical, or calendar related. Fundamental anomalies include value effect and small-cap effect (low P/E stocks and small cap companies do better than index on an average). Calendar anomalies involve patterns in stock returns from year to year or month to month, while technical anomalies include momentum
Momentum (finance)
In finance, momentum is the empirically observed tendency for rising asset prices to rise further, and falling prices to keep falling. For instance, it was shown that stocks with strong past performance continue to outperform stocks with poor past performance in the next period with an average...
effect.