Why investors should not be cautious about the academic approach to testing for stock market anomalies
Year: 2005
Type: article
Abstract: The ability of investors to implement seasonal strategies implied by academic papers has been widely criticised, most recently by Hudson, Keasey & Littler (2002). This paper addresses these concerns, and provides an example of a strategy derived from academic papers that indicates how and to what profitability such a strategy can be implemented. In particular, we examine the pre-holiday anomaly, where returns tend to be higher on the day before a holiday. After checking that the pre-holiday return compensates market frictions, we test the existence and the changing nature of such anomaly. Finally, we assess the profitability of the pre-holiday trading strategy in an out-of-the-sample period by checking that the pre-holiday profit is clearly different from the result an investor would obtain on a set of randomly selected days. This evidence is provided for three large stocks and an index in two different markets, Spain and Ireland.
Source: Applied Financial Economics
Authors: Brian M. Lucey, Angel Pardo *
Institutions: Trinity College Dublin, Universitat de València
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3123846595