The role of shorting, firm size, and time on market anomalies


There are now more than 300 published papers providing evidence of the persistence of price trends (inertia/momentum). We point out the constant flow of new papers adding to the evidence of relative price strength as a market inefficiency (often called a market anomaly by academics). I call it velocity.


We examine the role of shorting, firm size, and time on the profitability of size, value, and momentum strategies. We find that long positions make up almost all of size, 60% of value, and half of momentum profits. Shorting becomes less important for momentum and more important for value as firm size decreases. The value premium decreases with firm size and is weak among the largest stocks. Momentum profits, however, exhibit no reliable relation with size. These effects are robust over 86 years of US equity data and almost 40 years of data across four international equity markets and five asset classes. Variation over time and across markets of these effects is consistent with random chance. We find little evidence that size, value, and momentum returns are significantly affected by changes in trading costs or institutional and hedge fund ownership over time.

They find the momentum premium exists and is stable across all size groups and the entire 86-year period—it was persistent in all four 20-year periods examined, including the most recent two decades that followed the initial publication of the original momentum studies.

The role of shorting, firm size, and time on market anomalies Journal of Financial Economics, Volume 108, Issue 2, May 2013, Pages 275-301
Ronen Israel, Tobias J. Moskowitz

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