Does Academic Research Destroy Stock Return Predictability?

Alphanomics: The Informational Underpinnings of Market Efficiency

“…For example, Green et al [2011] show that the accrual anomaly originally documented in Sloan [1996] declines over time in response to increases in the supply of arbitrage capital committed to trading on abnormal accruals. Similarly, in a recent working paper, McLean and Pontiff [2013] survey 82 strategies identified in academic research that predict returns and shows that post-publication predictability significantly declines whereas trading activity associated with the strategies significantly increases. These findings are more pronounced in larger and more liquidity securities, suggesting that market frictions contribute the evidence of predictable returns.…”

“…Bebchuk et al [2013] report a similar finding for a trading strategy based on corporate governance. More generally, McLean and Pontiff [2013] survey 82 strategies identified in academic research that predict returns. They report that post-publication predictability significantly declines, while trading activity associated with the strategies significantly increases.…”

Sell in May and Go Away: Still good advice for investors?

“…It is usually assumed that the first publication of an anomaly in the academic literature is of great relevance for the dissemination of research (Jacobsen & Visaltanachoti, 2009;Marquering, Nisser, & Valla, 2006;McLean & Pontiff, 2014;Schwert, 2003). Academic research draws attention to anomalies, and knowledge about an anomaly is more widespread after publication.…”

“…For example,McLean and Pontiff (2014) report that the post-publication returns are lower for predictors that can be constructed with only price and trading data and for predictors that are less costly to arbitrage (e.g., for predictors concentrated in stocks with low idiosyncratic risk and high liquidity).…”

Asset-pricing anomalies at the firm level

“…For example, Harvey et al (2014) examine 202 individual characteristics associated with cross-sectional patterns in returns. McLean and Pontiff (2013) and Kogan and Tian (2013) consider 82 and 27 firm characteristics, respectively, in their studies of anomalies. section of stocks there is no evidence of a robust relation between either of these variables and firm alphas.…”