Larry Swedroe: Why Stock Price Anomalies Persist

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Random Walker
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Larry Swedroe: Why Stock Price Anomalies Persist

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http://www.etf.com/sections/index-inves ... nopaging=1

This article was at or a little beyond my level of understanding. Larry reviews an article that shows that the persistence over time of several market anomalies cannot be fully explained by limits to arbitrage on the short side. The author of the article takes a “poor man’s approach” to shorting by creating an exposure to a factor that is long top decile the factor and short total market. This at least excludes market beta. The conclusion is that there is benefit to long only exposure to a factor, synthetic (poor man’s short), and likely more expensive fully exposed long-short exposure. Many institutions, pension funds, mutual funds are ruled by charters that don’t allow shorting. For individuals like us, the costs of borrowing are larger and and we fear the potential of unlimited loss.

Dave
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